Dividends,taxes, and common stock prices: The ex-dividend day behavior of common stock prices before the income tax |
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| Institution: | 1. Norwegian School of Economics (NHH), Department of Business and Management Science, Helleveien 30, 5045 Bergen, Norway;2. University of Munich, Munich, Germany;3. University of Mannheim, D-68131 Mannheim, Germany;1. School of Computer Science, South China Normal University, Guangzhou and 510631, China;2. Business College, Guangxi University, Nanning and 530004, China;3. Sino-UK blockchain industry research institute, Guangxi University, Nanning and 530004, China;1. School of Public Finance and Taxation, Southwestern University of Finance and Economics, China;2. Research Institute of Economics and Management, Southwestern University of Finance and Economics, China |
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| Abstract: | 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. |
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