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Market Arbitrage of Cash Dividends and Franking Credits*
Author(s) -
BEGGS DAVID J.,
SKEELS CHRISTOPHER L.
Publication year - 2006
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.2006.00337.x
Subject(s) - dividend , economics , cash , arbitrage , financial economics , dividend policy , dividend tax , monetary economics , business , finance , tax reform , gross income , public economics , state income tax
Since 1986, dividend imputation has influenced the ex‐dividend day behaviour of Australian share prices. This paper explores the effects of dividend imputation on ex‐dividend share price drop‐off from its inception until mid‐2004, with particular attention paid to the differential effects of cash dividends and franking credits. We also explore the effects of the six major legislative amendments to the dividend imputation system that were introduced over the sample period. Only the most recent tax change, which provided full income rebates for unused franking credits, appears to have caused the market to put a statistically significant value on franking credits.