ex day behavior tax or short term trading effects this study examines the behavior of share prices around the ex dividend dates before and after the introduction of the 1988 income and corporation taxes act that reduced substantially the tax differential between dividends and capital gains in the united kingdom we find that in the pre 1988 period when the differential taxation of dividends and capital gains is high ex day returns are positive and significant in contrast in the post 1988 period ex day returns are in most cases negative and insignificant further analysis reveals that while ex day returns are significantly related to dividend yield and to the length of the settlement period they are not affected by the commonly used measures of transaction costs such as the bid ask spread and trading volume or by the day of week month of the year type of dividend distribution or number of days to the actual receipt of the cash dividend we conclude that taxation affects significantly ex day share prices in the previous studies have documented that the risk adjusted abnormal returns on the ex dividend dates are positive and significantly related to the dividend yield the interpretation of these findings is however controversial the question relates to what category of investors sets ex day prices elton and

the ex dividend day behavior of canadian stock prices tax changes and clientele effects with some simple assumptions the ex dividend day price drop and the associated dividend can be used to measure the market s marginal tax rate previous research has estimated the implied tax rate for the u s this paper extends the analysis to canada where the tax treatment of dividends and capital gains is completely different from that in the u s the paper also presents estimates from 1970 80 to include four distinct periods when the tax treatment was different hence we include an implied test of market efficiency as well as those for the relevance of taxes and the existence of tax based dividend clienteles

the effect of advance notification of plant closings on unemployment using data from the 1984 displaced worker survey the authors model the determinants of time without work following job displacement for a large sample of workers laid off because of plant shutdowns between 1979 and 1984 the major focus of the paper is on the role of advance notification in mitigating unemployment the estimating procedure accommodates right censored observations stemming from continuing or open ended spells of unemployment advance notification is found to have significantly reduced the duration of unemployment of those notified workers who did not draw unemployment insurance benefits and in particular of those who left the plant prior to termination advance notice had much less effect on the time without work of notified workers whose spell length of unemployment was long enough for them to collect unemployment insurance benefits

taxes and dividends the uk evidence abstract this paper provides empirical evidence on the simultaneous effects of both corporation and personal income taxes on dividend payment adjustments and on the behaviour of share prices on the ex dividend dates the results show that companies set their dividend policies to minimise their tax liability and to maximise the after tax return of their shareholders in particular firms that are unable to deduct the advanced corporation tax from their tax liability are found to pay low dividends in addition consistent with the tax hypothesis we find that the differential taxation of dividends and capital gains results in a decrease in ex day share prices by significantly less than the amount of the dividend there is no evidence of a tax induced dividend clientele

ex dividend day stock price behavior the case of the 1986 tax reform act this paper analyzes the behavior of stock prices around ex dividend days after the implementation of the 1986 tax reform act that dramatically reduced the difference between the tax treatment of realized long term capital gains and dividend income in 1987 and completely eliminated the differential in 1988 we show that this tax change had no effect on the ex dividend stock price behavior which is consistent with the hypothesis that long term individual investors have no significant effect on ex day stock prices during this time period the results indicate that the activity of short term traders and corporate traders dominates the price determination on the ex day

new evidence that taxes affect the valuation of dividends this paper uses british data to examine the effects of dividend taxes on investors relative valuation of dividends and capital gains british data offer great potential to illuminate the dividends and taxes question since there have been two radical changes and several minor reforms in british dividend tax policy during the last 30 years studying the relationship between dividends and stock price movements during different tax regimes offers an ideal controlled experiment for assessing the effects of taxes on investors valuation of dividends using daily data on a small sample of firms and monthly data on a much broader sample we find clear evidence that taxes affect the equilibrium relationship between dividend yields and market returns these findings suggest that taxes are important determinants of security market equilibrium and deepen the puzzle of why firms pay dividends financial economists have long been puzzled by corporate dividend behavior many individual investors should value a dollar of corporate dividends less than a dollar of corporate retentions because the former gives rise to greater tax liabilities corporations however face equal costs of paying out dividends and retaining earnings miller and modigliani 31 demonstrated that in the absence of taxes dividend policy should have no effect on share valuation if dividends are tax penalized however a value maximizing firm should pay no dividends widespread dividend payments to taxable investors are therefore surprising in 1981 dividend tax revenues in the united states were estimated to exceed 20 billion dollars indeed some have interpreted the large volume of dividends paid as evidence against the rational behavior postulates typically used by economists the dividend question has stimulated a large theoretical and empirical literature concerned with the qluestion of investors valuation of dividends in particular the question of how taxes affect the market valuation of dividends has generated considerable controversy numerous studies including auerbach 2 litzenberger and ramaswamy 24 26 morgan 34 and rosenberg and marathe

portfolio rebalancing and the effective taxation of dividends and capital gains following the tax reform act of 1986 abstract the tax reform act tra of 1986 among other things equalized the nominal taxation of dividend and capital gains income the evidence is consistent with the hypothesis that ordinary investors rebalanced their portfolio holdings in response to the new taxes such rebalancing appears to have concentrated on liquid stocks indicating that transaction costs are an important consideration for ordinary investors involved in restructuring their portfolio holdings the tax clientele relationships that existed prior to the new act were distorted temporarily but have reappeared by 1988 interestingly investors post reform effective tax rates still give a preference to capital gains as they did prior to the tax reform

the ex dividend day behavior of stock prices a re examination of the clientele effect a comment in a recent article in this journal kalay 5 has written an extensive comment on our 1970 article 2 concerning marginal stockholder tax rates and the clientele effect while we are flattered that our article is viewed of sufficient importance to gain this attention 12 years after it was written we do have reservations about kalay s comments we are principally concerned with his interpretations of relevant transaction costs and the role they play in setting equilibrium

the ex dividend day behavior of stock prices the case of japan we provide a comprehensive empirical analysis of stock price behavior around the ex dividend day in japan we find that prices rise on the ex day and that dividend related tax effects appear to be secondary returns around ex dividend days are dominated by the proximity of many ex days to the fiscal year end excess returns of 1 percent which are independent of any dividend related considerations are higher than round trip transaction costs on medium sized transactions prices seem to imply selling pressure before and buying pressure at the start of the new fiscal year these trading patterns appear to be motivated by intercorporate manipulative trading around the end of the firms fiscal year which are unrelated to dividends article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

market valuation of tax timing options evidence from capital gains distributions we examine a distribution that is taxed as a capital gain rather than as a dividend since the distribution induces a realized capital gain while the price change is an unrealized gain ex day return behavior provides evidence of the value of tax timing capital gains we show that investors are compensated 7c in unrealized gains for each dollar of realized capital gains that is 1 of realized capital gains is equivalent to 93c of unrealized gains an investor with a tax rate on realized gains of 15 has an effective tax rate on unrealized capital gains of 8 6 capital gains taxes can be deferred until assets are sold this feature provides the investor who purchases a security with an option regarding the timing of the realization of capital gains and losses this option can be used to lower one s expected tax liability even if capital gains tax rates remain constant for different holding periods an investor who delays the realization of a gain effectively enjoys compound returns on the postponed taxes if capital losses are tax deductible or partially tax deductible tax timing is even more valuable since investors can follow the strategy of selling stocks with capital losses early while postponing the sale of winners recent evidence lends support to the contention that some investors respond to this tax timing option for example odean 1998 shows that u s investors are more likely to sell losers in december than other months similarly grinblatt and keloharju 2002 show that at the end of the tax year finnish investors are more likely to realize losses than gains this type of tax motivated trade seems to affect market returns as shown by poterba and weisbenner 2001 who demonstrate that end of year tax loss selling is related to return variation in the month of january

the choice of titling system in land abstract this paper analyzes the choice of the socially optimal titling system assuming rational individual choices about recording assurance and registration decisions it focuses on the enforcement of property rights to land under private titling and the two existing public titling systems recording and registration when the reduction in the expected costs of forfeiture balances the higher cost of initial registration a registration system is more efficient than a recording system implications for title assurance land improvements and transactions are also considered

ex date stock price adjustment to stock dividends a note many recipients of stock dividends look upon them as distributions of corporate earnings and usually in an amount equivalent to the fair value of the additional shares received furthermore it is to be presumed that such views of recipients are materially strengthened in those instances which are by far the most numerous where the issuances are so small in comparison with the shares previously outstanding that they do not have any apparent effect upon the share market price and consequently the market value of the shares previously held remains substantially unchanged

tax induced trading of equity securities evidence from the adr market we examine ex dividend date trading of american depositary receipts adrs using a sample of 1 043 dividends over the period 1988 to 1995 adr dividends are often subject to foreign withholding taxes creating incentives for certain investors to avoid the distribution adrs exhibit negative abnormal ex dividend day returns and their prices behave consistently with their related withholding taxes abnormal trading volume for taxable issues exceeds 130 percent and 300 percent of normal volume on the cum and ex dates respectively abnormal volume is an increasing function of foreign withholding tax rates and decreasing function of transactions costs this abnormal exdate trading activity is consistent with tax motivated trading this paper provides empirical evidence from a sample of american depositary receipts adrs that foreign taxes on dividend income are positively associated with abnormal ex dividend day trading activity researchers have long been interested in the question of whether taxes affect investor behavior around ex dividend days such work has implications for corporate financial and distribution policies and for government tax policies adrs provide a unique setting in which to examine the effects of taxes on investor trading behavior because of the unique features of the foreign withholding taxes that apply to them a number of studies have attempted to isolate the determinants of ex dividend day pricing and trading activity of u s equities and there is considerable evidence of tax induced investor behavior around the ex dividend day for common

ex dividend day stock price behavior discreteness or tax induced clienteles abstract since prices are constrained to discrete tick multiples while dividends are essentially continuous ex day price changes will not equal dividends we argue that the expected price drop is strictly less than the dividend but within one tick of the dividend the price drop to dividend ratio will i be less than one ii increase with dividends generally and iii decline between tick multiples giving a sawtooth pattern in the data since dividends and dividend yields are highly correlated discreteness will give the impression of tax induced dividend clienteles even if there are none taxable cash dividends and nontaxable stock dividends exhibit similar ex day behavior

dividends taxes and common stock prices the ex dividend day behavior of common stock prices before the income tax this study examines the ex dividend day behavior of common stock prices before the enactment of the federal income tax on ex dividend days during the pre tax period stock prices fell on average by the full amount of the dividend the data are consistent with the hypothesis that i investors in the pre tax period value dividends and capital gains as perfect substitutes and ii the differential taxation of dividends and capital gains has since caused investors to discount the value of taxable cash dividends in relation to capital gains

tax induced trading around ex dividend days abstract this paper investigates trading volume around ex dividend days for taxable distributions cash dividends it is found that trading volume increases significantly around the ex dividend day this increase is more pronounced for high yield actively traded stocks and after brokerage commissions became negotiable the results are consistent with the hypothesis that short term traders have an impact on ex day price behavior at least for taxable distributions for non taxable distributions stock splits and stock dividends we find negative abnormal volume around ex day

tax reform and ex dividend day behavior this paper investigates the effect of a major canadian tax reform on the ex dividend day behavior of companies on the toronto stock exchange the results are inconsistent with the hypothesis that price changes on ex dividend days reflect the relative taxation of dividends and capital gains for the representative investor but are consistent with the hypothesis that ex dividend day price behavior reflects short term trading activities

the effect of tax heterogeneity on prices and volume around the ex dividend day evidence from the milan stock exchange to investigate the effect of taxation on stock price and trading volume around the ex dividend day we use the italian stock market where dividends on two classes of stock are taxed differently we find that the weighted average of investors tax rates is reflected in the ex day prices and the variance of the relative tax rate across investors is reflected in the volume of trades we also show that higher transaction costs result in higher ex dividend day excess returns and lower abnormal volume this finding is consistent with profit elimination activity by institutions and corporations article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

dividend taxation in firm valuation new evidence in this paper we develop a residual income model showing how taxes on dividends affect the relative valuation of retained earnings versus contributed equity as well as the value of expected future earnings tests of predictions from our model for a sample of compustat firms from 197594 suggest that overall firm value and the relative valuation weights investors assign to retained earnings contributed equity and current earnings all critically depend on dividend taxes the findings also suggest that investors take a proprietary perspective in valuation and impute an unrecorded shareholder level tax liability on retained earnings the u s tax system subjects retained earnings to dividend taxes upon distribution to shareholders while contributed equity is returned to shareholders as a nontaxable return of capital from the shareholder s proprietary perspective therefore retained earnings should be valued on

ex dividend price behavior of common stocks this study examines common stock prices around ex dividend dates such price data usually contain a mixture of observations some with and some without arbitrageurs and or dividend capturers active our theory predicts that such mixing will result in a nonlinear relation between percentage price drop and dividend yield not the commonly assumed linear relation this prediction and another important prediction of theory are supported empirically in a variety of tests marginal price drop is not significantly different from the dividend amount thus over the last several decades one for one marginal price drop has been an excellent average rule of thumb article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

are seasonal anomalies real a ninety year perspective in recent years there has been a proliferation of empirical studies documenting unexpected or anomalous regularities in security rates of return in addition to the widely studied relation between firm size and rate of return 1 these include seasonal regularities related to the time of the day harris 1986 the day of the week see ball and bowers 1986 cross 1973 french 1980 gibbons and hess 1981 jaffe and westerfield 1985 keim and stambaugh 1984 and lakonishok and levi 1982 the time of the month ariel 1987 and the turn of the year see haugen and lakonishok 1988 jones pearce and wilson 1987 lakonishok

an examination of ex dividend day stock price movements the case of nontaxable master limited partnership distributions this study examines the unit stock price and volume behavior of master limited partnerships mlp around the ex dividend day since the dividends of mlps are not taxable to the unitholder tax based hypotheses predict no abnormal unit movements around the ex day significant positive excess returns and volume are found before the ex dividend day and significant negative excess returns are found on the ex dividend day the findings which are not significantly impacted by the tax reform act of 1986 suggest ex day stock movements are not solely a function of investor marginal tax rates or corporate trading behavior elton and gruber s 1970 findings that in 1966 67 stock prices fell on average by less than the amount of the dividend on the ex dividend date and that the ratio of the price decrease to the dividend was correlated with the dividend yield have led to the development of a tax clientele hypothesis relating to investor behavior one puzzling result from their study was the finding that the price decreases for the highest yielding securities were significantly greater than the dividends which in their analysis implied an investor clientele with negative tax rates while michaely 1989 using 1986 87 data was unable to find support for the tax clientele hypothesis across different yield groups he also documented the large price drop for the highest yielding securities michaely 1989 suggested that his results may demonstrate a preference of corporations for dividend over capital gains because of favorable tax treatment corporations receive on dividend income corporate trader hypothesis shefrin and statman 1984 however suggest that preferences for dividends over capital gains may exist for nontax reasons such as self control or a desire to segregate gains and losses the purpose of this paper is to examine the ex dividend day stock price behavior of master limited partnership mlp units during the 1985 88 period dividends from these high yielding securities are not taxable therefore support for either the tax clientele hypothesis or the corporate trader hypothesis would be found only if the average ex day price change on mlps equalled the dividend this result would also be consistent with barclay s 1987 finding that before the enactment of an income tax in 1913 even high

personal income taxes and the january effect small firm stock returns before the war revenue act of 1917 a note this paper tests the tax explanation of the january effect by examining small firm stock returns before the war revenue act of 1917 no evidence of a turn of the year effect is found this paper also extends previous authors work on the subject to 191829 a january effect is found during that period the large abnormal returns earned by small firm stocks during the first few days of january is attracting considerable attention from financial economists specifically keim 10 shows that over the entire 1963 79 period the average difference between risk adjusted returns of small and large firms is about 0 7 per day during january even more striking is the finding of keim 9 that over the entire 1931 78 period the relation between daily abnormal returns and size is always negative and more pronounced in january than in any other month similarly ibbotson and sinquefield 8 note that the average return on the quintile of nyse stocks with the lowest market values exceeds the return on the standard and poor s corporate index for 50 of the 56 januarys from 1926 81 there is no accepted theory linking the excess returns of small firms in january with the change of the tax year nevertheless the plausibility of a relation between taxes and stock return seasonality has led roll 17 brown et al 6 berges mcconnell and schlarbaum 2 and reinganum 16 among others to investigate personal income taxes as an explanation for the january effect this paper uses a different methodology and reaches stronger conclusions than any of the above papers specifically i examine the returns of small firms for the period from 1900 to 1929 prior to the revenue act of 1917 marginal income tax rates for investors were very low or zero the major finding of this paper is that there is no evidence that small firms earned abnormal returns in january prior to the 1917 tax act i also show that a january effect does appear during the years 1918 29 therefore i cannot reject a tax explanation for the january effect