Are imputation credits capitalised into stock prices?

Siau, Kai Wei Shaun; Sault, Stephen J.; Warren, Geoffrey J.

doi:10.1111/acfi.12058

Cited by 12 publications

(27 citation statements)

References 79 publications

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“…Moreover, the findings of Lajbcygier and Wheatley () appear to be supported by Siau et al () using discounted cash flows, earnings yields, and additional methods to explain price levels rather than returns utilizing conventional asset pricing models. In addition, they identify high multicollinearity between imputation credit yield and dividend yield of 57 per cent, and between imputation credit yield and earnings per share of 72 per cent, making it hard to distinguish the effect of imputation as distinct from either dividends or earnings within their price‐level framework.…”

Section: Literature Reviewmentioning

confidence: 69%

“…These extreme degrees of multicollinearity could help explain why the statistical significance of franking credits was low in their framework. Recognising these limitations, Siau et al () also conduct portfolio sorts and double sorts to detect pricing premia, which they fail to find.…”

Section: Literature Reviewmentioning

confidence: 99%

“…For simplicity and consistency with my purely indicative (dummy) variable methodology, I do not distinguish between fully franked and partially franked dividends, nor do I impute any value to franking credits but rather let the market data coefficient estimates speak for themselves. I thus attempt to overcome the main problem facing virtually all imputation credit analysis, which is the very high correlation between imputation benefits and the dividends themselves that was identified in the study by Siau et al (). In this paper I consider the reaction to both franked and unfranked dividends over the entire dataset such that many as possible permanently non‐franking firms are included.…”

Section: Data and Estimation Of The Generalised Single‐pass Modelmentioning

confidence: 99%

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Investment, the Corporate Tax Rate, and the Pricing of Franking Credits

Swan¹

2019

Economic Record

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I apply a new single‐pass capital asset pricing model methodology for assessing systematic risk to all ASX stocks which indicates that securities which pay franking credits in Australia appear to face far less systematic risk than do stocks that never pay franking credits. But in this context, this apparent reduction in systematic risk can be interpreted as being due to franking credits that are close to being fully priced. An efficient equilibrium is reached in which the marginal investor in Australia pays little or no Australian corporate tax because, once she exhausts compulsory savings, she borrows offshore and converts debt to equity.

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Section: Literature Reviewmentioning

confidence: 69%

Section: Literature Reviewmentioning

confidence: 99%

Section: Data and Estimation Of The Generalised Single‐pass Modelmentioning

confidence: 99%

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Investment, the Corporate Tax Rate, and the Pricing of Franking Credits

Swan¹

2019

Economic Record

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“…7. However, some studies, such as Siau et al (2015) and Feuerherdt et al (2010), find that imputation credits do not affect the cost of capital. 8.…”

Section: Other Areas Of Corporate Finance and Future Directionsmentioning

confidence: 99%

A contemporary view of corporate finance theory, empirical evidence and practice

Faff

Gray

Tan

2016

Australian Journal of Management

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This paper uses a survey of Australian Corporate Treasurers to shed light on the gap between the theory and practice of corporate finance in Australia. Seven areas are examined: capital structure, payout policy, cash holdings, initial public offerings, seasoned equity offering, mergers and acquisitions, and corporate governance. We also exploit the Global Financial Crisis to examine the effect of liquidity shocks on a firm's capital structure choices. We then compare our Australian survey results with results from a comprehensive U.S. survey conducted by Graham and Harvey (2001). Our survey shows that the board of directors play the most important role in determining capital structure decisions and that corporate treasurers play the most important role in cash holding decisions. This contrasts with the academic literature that has typically focused on the role of CEO in both capital structure and cash holdings decisions. In addition, our respondents do not view the tax advantage of interest deductibility to be of first order of importance for debt issuance choices, which contrasts with most of the U.S. empirical studies. Finally, we juxtapose the theory-practice perspective, with a review of the most recent five years (2011)(2012)(2013)(2014)(2015) of corporate finance research published in the leading Asia Pacific Basin finance journals. Abstract This paper uses a survey of Australian Corporate Treasurers to shed light on the gap between the theory and practice of corporate finance in Australia. Seven areas are examined: capital structure, payout policy, cash holdings, initial public offerings, seasoned equity offering, mergers and acquisitions, and corporate governance. We also exploit the Global Financial Crisis to examine the effect of liquidity shocks on a firm's capital structure choices. We then compare our Australian survey results with results from a comprehensive U.S. survey conducted by Graham and Harvey (2001). Our survey shows that the board of directors play the most important role in determining capital structure decisions and that corporate treasurers play the most important role in cash holding decisions. This contrasts with the academic literature that has typically focused on the role of CEO in both capital structure and cash holdings decisions. In addition, our respondents do not view the tax advantage of interest deductibility to be of first order of importance for debt issuance choices, which contrasts with most of the U.S. empirical studies. Finally, we juxtapose the theory-practice perspective, with a review of the most recent five years (2011)(2012)(2013)(2014)(2015) of corporate finance research published in the leading Asia Pacific Basin finance journals.

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“…The small and open nature of the Australian economy may result in different outcomes for two reasons. First, the marginal cost of equity for Australian banks may be determined by international investors who cannot utilise the dividend imputation credits accompanying bank dividends, resulting in a tax disadvantage to using additional equity (Siau, Sault and Warren ). Second, the concentrated nature of the Australian banking industry may contribute to perceptions that authorities will intervene in the event of a banking crisis, thereby increasing the level of implicit government support for bank debt (International Monetary Fund ) .…”

Section: Introductionmentioning

confidence: 99%

Effect of Higher Capital Requirements on the Funding Costs of Australian Banks

Cummings¹,

Wright²

2016

Australian Economic Review

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The 2014 Murray Financial System Inquiry recommends that Australian banks be required to have higher capital levels. This article examines the arguments about the impact of higher capital requirements on banks' funding costs and assesses their relevance to the Australian banking sector. Based on scenario analysis, we estimate that higher capital requirements will result in a modest increase in the borrowing costs faced by bank customers (in the order of 20 basis points annually for a 5 percentage point increase in the ratio of equity capital to bank assets). We discuss other consequences of higher capital requirements for the Australian banking sector.

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Are imputation credits capitalised into stock prices?

Cited by 12 publications

References 79 publications

Investment, the Corporate Tax Rate, and the Pricing of Franking Credits

Investment, the Corporate Tax Rate, and the Pricing of Franking Credits

A contemporary view of corporate finance theory, empirical evidence and practice

Effect of Higher Capital Requirements on the Funding Costs of Australian Banks

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