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The value of dividends: Evidence from cum‐dividend trading in the ex‐dividend period
Author(s) -
Walker Scott,
Partington Graham
Publication year - 1999
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/1467-629x.00027
Subject(s) - dividend , economics , liberian dollar , monetary economics , transaction cost , financial economics , value (mathematics) , dividend policy , econometrics , microeconomics , finance , mathematics , statistics
What is the market value of a dollar of fully franked dividends? We address this question by exploiting a new phenomenon in the Australian capital market—the trading of shares cum‐dividend during the ex‐dividend period. This allows a relatively clean measurement of the combined value of dividends and the associated tax effects net of transactions costs. Consistent with the theoretical model that we develop, the evidence from this sample is that one dollar of fully franked dividends, after tax effects and transaction costs, is worth significantly more than one dollar. We also show that, in contrast to our measure, the traditional measure of the ex‐dividend price drop‐off, based on close to close prices, has a lower average value and exhibits substantially more cross sectional variation.