Ex-Dividend Day Price and Volume: The Case of 2003 Dividend Tax Cut | Zendy

Yi Zhang | Zendy; Kathleen A. Farrell | Zendy; Todd A. Brown | Zendy

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Ex-Dividend Day Price and Volume: The Case of 2003 Dividend Tax Cut

Author(s) -

Yi Zhang,

Kathleen A. Farrell,

Todd A. Brown

Publication year - 2008

Publication title -

national tax journal

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.43

H-Index - 57

eISSN - 1944-7477

pISSN - 0028-0283

DOI - 10.17310/ntj.2008.1.05

Subject(s) - dividend , economics , dividend tax , capital gains tax , dividend yield , monetary economics , financial economics , dividend policy , double taxation , tax reform , ad valorem tax , finance , state income tax , gross income , public economics

We examine the impact of the 2003 dividend tax cut, which removes the differential taxation between dividends and capital gains for individual investors, on the ex-dividend day price and trading volume. We find the ex-dividend day price and volume are affected by taxes, risk, and transaction costs. The ex-dividend day price drop ratio (excess return) increases (decreases) and dividend clienteles weaken after the tax cut. Ex-dividend day abnormal volume among high dividend yield stocks decreases after the tax cut consistent with a diminished motivation for tax-induced trading. Our results suggest that individual investors have a measurable effect on the ex-dividend day price and trading volume.

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