nach oben

Review of Quantitative Finance and Accounting

Erschienen in:

01.08.2012 | Original Research

Effects of tax reform on drop-off ratios and on the ex-dividend and ex-right prices

verfasst von: Jack Clark Francis, Tsing Zai C. Wu, Nan-Ting Kuo

Erschienen in: Review of Quantitative Finance and Accounting | Ausgabe 2/2012

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

The main purpose of this paper is to examine the impact of the integrated tax system introduced in Taiwan on the valuation of dividends. Based on Elton and Gruber’s (Rev Econ Stat 52:68–74, 1970) model, the ratio of ex-day price drop to cash dividend per share (i.e., the drop-off ratio) should reflect the relative taxes on dividends and capital gains. In Taiwan, the suspension of capital gains taxes, the coexistence of taxable and non-taxable stock dividends, and the change in tick sizes allow us to control for the influences of non-tax factors on drop-off ratios. In this paper, we find significant increases in drop-off ratios for both cash dividends and taxable stock dividends after Taiwan’s tax reform (in 1998), while we find no significant changes in drop-off ratios for non-taxable stock dividends. These results provide further evidence to support the argument that tax affects the valuation of firms.

Nächster Artikel Capital investment and momentum strategies

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Nur mit Berechtigung zugänglich

Our empirical results are complementary to prior studies that demonstrate the influence of individual-shareholder taxation on the firm’s dividend policy and investment decision (e.g., Lamdin 1993; Jugurnath et al. 2008).

In Taiwan, the tax rate for corporate income below NT$100,000 (about $3,000 U.S. dollar) is 15%, and that above NT$100,000 is 25%. Since it is seldom for firms making profits below NT$100,000, it is appropriate to conclude that corporate income is subject essentially a single rate of 25%.

A noteworthy feature of the new integrated tax system is that for individual shareholders whose dividend tax payables are lower than their tax credits, the remaining credits are fully refundable.

For all stocks priced above one dollar per share on the Taiwan Stock Exchange, the tick size is never more than one percent of the stock’s price. For stocks priced below one dollar (so-called penny stocks), the tick size grows above one percent as the stock’s price declines below one dollar. The rising tick size percentage on penny stocks appears to exist to discourage the existence of such stocks. Since no penny stocks were included in our sample, the tick sizes were all less than one percent, and thus represent no statistical problems of the type suggested by Bali-Hite (1998).

The Tax Clientele Effect assumes shareholders with higher marginal tax rates on dividends prefer to invest in firms that retain more of their profits, and thereby offer capital gains, while shareholders with lower marginal tax rates prefer to invest in firms that distribute a higher fraction of their profits as dividends. This assumption implies that the drop-off ratio increases with the dividend yield.

The following analysis shows that the drop-off ratio for stock dividends is not the same as that for cash dividends. Therefore, we have to analyze and empirically test them separately.

Domestic institutional investors include government entities, financial institutions (securities firms and banks), corporations, mutual funds, etc.

Bali R, Hite GL (1998) Ex-dividend day stock price behavior: discreteness or tax-induced clienteles? J Financ Econ 47:127–159CrossRef

Bell L, Jenkinson T (2002) New evidence of the impact of dividend taxation and on the identity of the marginal investor. J Finance 57:1321–1346CrossRef

Booth L, Johnston D (1984) The ex-dividend day behavior of Canadian stock prices: tax change and clientele effects. J Finance 39:457–476

Brown P, Clarke A (1993) The ex-dividend day behavior of Australia share prices before and after dividend imputation. Aust J Manage 18:1–40CrossRef

Chou RK, Lee WC, Chen SS (2005) The market reaction around ex-dates of stock splits before and after decimalization. Rev Pacific Basin Finan Markets Policies 8:201–216CrossRef

Elton EJ, Gruber MJ (1970) Marginal stockholder tax rates and the clientele effect. Rev Econ Stat 52:68–74CrossRef

Elton EJ, Gruber MJ, Blake CR (2005) Marginal stockholder tax effects and ex-dividend-day price behavior: evidence from taxable and non-taxable closed-end funds. Rev Econ Stat 87:579–586CrossRef

Frank M, Jagannathan R (1998) Why do stock prices drop by less than the value of the dividend? Evidence from a country without taxes. J Financ Econ 47(2):161–188CrossRef

Graham JR, Michaely R, Roberts MR (2003) Do price discreteness and transactions costs affect stock returns? Comparing ex-dividend pricing before and after decimalization. J Finance 58:2611–2635CrossRef

Jakob K, Ma T (2004) Tick size, NYSE rule 118, and ex-dividend day stock price behavior. J Financ Econ 72:605–625CrossRef

Jugurnath B, Stewart M, Brooks R (2008) Dividend taxation and corporate investment: a comparative study between the classical system and imputation system of dividend taxation in the United States and Australia. Rev Quant Financ Acc 31:209–224CrossRef

Kadapakkam P (2000) Reduction of constraints on arbitrage trading and market efficiency: an examination of ex-day returns in Hong Kong after introduction of electronic settlement. J Finance 55:2841–2861CrossRef

Kalay A (1982) The ex-dividend day behavior of stock prices: a re-examination of the clientele effect. J Finance 37:1059–1070

Lakonishok J, Vermaelen T (1983) Tax reform and ex-dividend day behavior. J Finance 38:1157–1179

Lamdin DJ (1993) Shareholder taxation and aggregate dividend payout: evidence from the tax reform act of 1986. Rev Quant Financ Acc 3:459–468CrossRef

Lasfer MA (1995) Ex-day behavior: tax or short-term trading effects. J Finance 50:875–897

Lee YT, Liu YJ, Roll R, Subrahmanyam A (2006) Taxes and dividends clientele: evidence form trading and ownership structure. J Bank Finance 30:229–246CrossRef

Michaely R (1991) Ex-dividend day stock price behavior: the case of the 1986 tax reform act. J Finance 47:845–859

Miller M, Modigliani F (1961) Dividend policy, growth and the valuation of shares. J Bus 34:411–433CrossRef

Poterba J, Summers L (1984) New evidence that taxes affect the valuation of dividends. J Finance 39:1397–1415

White H (1980) A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica 48:817–838CrossRef

Titel: Effects of tax reform on drop-off ratios and on the ex-dividend and ex-right prices
verfasst von: Jack Clark Francis
Tsing Zai C. Wu
Nan-Ting Kuo
Publikationsdatum: 01.08.2012
Verlag: Springer US
Erschienen in: Review of Quantitative Finance and Accounting / Ausgabe 2/2012
Print ISSN: 0924-865X
Elektronische ISSN: 1573-7179
DOI: https://doi.org/10.1007/s11156-011-0246-z

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Weitere Artikel der Ausgabe 2/2012

Corporate governance and the stock market reaction to new product announcements

Analytical bounds for Treasury bond futures prices

Experience, information asymmetry, and rational forecast bias

The price impact of foreign institutional herding on large-size stocks in the Taiwan stock market

Capital investment and momentum strategies