Effects of investor tax heterogeneity on stock prices and trading behaviour around the ex-dividend day: the case of Australia |
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| Authors: | Nguyen Ngoc Anh Le Xiangkang Yin Jing Zhao |
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| Institution: | 1. School of Economics, Finance, and Marketing, RMIT University, Melbourne, VIC, Australia;2. Department of Finance, Deakin University, Burwood, VIC, Australia;3. Department of Economics and Finance, La Trobe University, Melbourne, VIC, Australia |
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| Abstract: | Using a sample of Australian stocks during the 1996–2014 period, this study examines how tax heterogeneity between domestic and foreign investors affects trading behaviour and stock prices around the ex-dividend day. Domestic investors prefer dividends and tend to buy stocks cum-dividend and sell them ex-dividend whereas foreign investors tend to trade in the opposite direction. Abnormal trading turnover increases with tax heterogeneity. Moreover, stocks with a larger domestic investor base are associated with a higher price drop-off ratio on the ex-dividend day and higher market value of franking credits. Overall, our findings support the dynamic dividend clientele hypothesis. |
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| Keywords: | Ex-dividend day Tax heterogeneity Dividend imputation |
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