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FURTHER EVIDENCE ON DIVIDEND YIELDS AND THE EX‐DIVIDEND DAY STOCK PRICE EFFECT
Author(s) -
Bhardwaj Ravinder K.,
Brooks LeRoy D.
Publication year - 1999
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1999.tb00708.x
Subject(s) - economics , dividend , dividend tax , capital gains tax , monetary economics , stock (firearms) , financial economics , double taxation , tax reform , ad valorem tax , finance , state income tax , gross income , mechanical engineering , engineering , public economics
Ex‐dividend day stock price behavior supports a tax clientele effect. This effect is still found after the Tax Reform Act of 1986. Results reflect an effective tax advantage for capital gains taxes payable at realization, versus dividend taxes due quarterly. Evidence also supports short‐term trader participation in the ex‐day phenomenon when the difference between dividend income and the ex‐dividend‐day price decrease exceeds transactions costs to trade. Results contradict prior research where a tax clientele effect is not found, but align with this prior research when including a small number of contaminated observations.