Ex dividend day stock price behavior: discreteness or tax-induced clienteles?

Bali, Rakesh; Hite, Gailen L.

doi:10.1016/s0304-405x(97)00041-x

Cited by 231 publications

(260 citation statements)

References 27 publications

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“…Please insert Table 1 The corresponding t-statistic (p-value) is -3.7868 (0.0000), suggesting that the difference of the mean (median) from the corresponding theoretical value of 1.00 (1.0000) is statistically significant at the 1% 9 The findings are in line with evidence reported by: Grammatikos (1989) for the period after the 1984 tax reform, Michaely (1991) for the period from April 1986 to March 1987 (this period is before the implementation of the 1986 Tax Reform Act that aligned the tax treatment of dividend income and capital gains) and Bali and Hite (1998). On the other hand, the evidence is inconsistent with the findings provided by Green and Rydqvist (1999) on the ex-dividend day (the stock price was higher than the price on the cum-day for a sample of Swedish lottery bonds which operate in an environment with barriers for short-term arbitrage and with cash distributions from such bonds enjoying a tax advantage relative to capital gains).…”

Section: Price Behavior On the Ex-dividend Daysupporting

confidence: 79%

“…2 See Kalay (1982), Lakonishok and Vermaelen (1986), Heath and Jarrow (1988), Kaproff andWalking (1988, 1990), Grammatikos (1989), Boyd and Jagannathan (1994) and Michaely andVila (1995, 1996). 3 See Shefrin and Statman (1984), Dubofsky (1992), Frank and Jagannathan (1998), Bali and Hite (1998), Kadapakkam (2000), Jakob and Ma (2004), AlYahyaee et al (2008).…”

Section: Introductionmentioning

confidence: 99%

“…4 Also, significant market microstructure impediments observed in other developed stock markets (i.e., bid-ask spread, market makers, price discreteness, tick size and limit order adjustment mechanism) are not present in the ASE. Specific institutional characteristics of the ASE, analyzed in the following section, allow us to exclude the respective explanations presented for the ex-dividend day stock price anomaly, that is, the bid-ask spread and market maker hypothesis (Frank and Jagannathan (1998)), the price discreteness and tick size hypothesis (Bali and Hite (1998)) and the limit order adjustment mechanism hypothesis (Dubofsky (1992)). Milonas and Travlos (2001) examine stock price behavior on the ex-dividend day in the ASE for the period [1994][1995][1996][1997][1998][1999].…”

Section: Introductionmentioning

confidence: 99%

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Price adjustment method and ex-dividend day returns in a different institutional setting

Asimakopoulos

Tsangarakis

Tsiritakis

2015

International Review of Financial Analysis

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Section: Price Behavior On the Ex-dividend Daysupporting

confidence: 79%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Price adjustment method and ex-dividend day returns in a different institutional setting

Asimakopoulos

Tsangarakis

Tsiritakis

2015

International Review of Financial Analysis

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“…The smaller-than-dividend price decline has been attributed to transactions costs (Kalay, 1982) and market microstructure effects (Bali and Hite, 1998). In addition, Eades et al (1994) find that variation in ex-day behavior is unrelated to changes in the tax regime and Frank and Jagannathan (1998) find evidence of ex-day price drop ratios less than one in Hong Kong, a country with no investor taxes.…”

Section: Ex-dividend Day Studiesmentioning

confidence: 99%

A review of tax research

Hanlon¹,

Heitzman²

2010

Journal of Accounting and Economics

2,139

646

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Abstract:In this paper, we present a review of tax research. We survey four main areas of the literature: 1) the informational role of income tax expense reported for financial accounting, 2) corporate tax avoidance, 3) corporate decision-making including investment, capital structure, and organizational form, and 4) taxes and asset pricing. We summarize the research areas and questions examined to date and what we have learned or not learned from the work completed thus far. In addition, we provide our opinion as to the interesting and important issues for future research. ______________________This paper was prepared for the 2009 Journal of Accounting and Economics Conference. We appreciate comments from Scott Dyreng, Mihir Desai (discussant), S.P. Kothari (editor), John Long, Ed Maydew, Lillian Mills, Tom Omer, Sonja Rego, Doug Shackelford, Terry Shevlin, Joel Slemrod, Cliff Smith, David Weber, Ryan Wilson, Jerry Zimmerman, George Zodrow, and conference participants at the JAE Conference as well as at the 2009 University of North Carolina Tax Symposium and the discussant there, Bill Gentry. All errors and omissions are our own. * Corresponding author: 100 Main Street, Cambridge, MA. email: mhanlon@mit.edu. 1 A Review of Tax Research IntroductionIn this paper, we review tax research in accounting as well as tax research in economics and finance to the extent that it is related to or is affected by research in accounting. Shackelford and Shevlin (2001) provide a careful and thorough review of empirical tax research in accounting in the prior Journal of Accounting and Economics review volume. Shackelford and Shevlin limit their review to research published in accounting outlets and describe the development of the relatively young archival, microeconomic-based income tax literature that arose from the Scholes andWolfson framework. In his discussion of the review, Maydew (2001) emphasizes the need for tax researchers in accounting to think more broadly and to incorporate more theory and evidence from economics and finance. We agree. Tax research has a long history in many disciplines; this fact cannot be ignored. Our goal in this paper is to integrate the theoretical and empirical tax research from accounting, economics, and finance, to summarize what is known and unknown, and to offer suggestions for future research.The multidisciplinary nature of tax research is what makes tax research exciting (yes, exciting), yet difficult. Tax research can be difficult not only because one has to follow tax studies in accounting, finance, economics, and law (through academic institutions, governmental agencies, and policy think tanks), but also because different disciplines often use different languages and have different perspectives. 1 For example, economists generally focus on tax compliance, tax incidence (such as who bears the corporate tax), investment and economic growth effects (such as how taxes 1 Slemrod (1992a) characterizes these differences as economists studying what corporations actually do and accountants stud...

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“…Within the microstructure explanatory framework, Bali and Hite (1998) argue that whenever price discreteness ("tick size" hypothesis) entails dividends that are inexact multiples of the tick size, 6 the ex-day price drop will be equal to the dividend amount rounded always downwards to the tick below. In addition, Frank and Jagannathan (1998) presume that long-term investors who "find dividends more of a nuisance" due to the cost of collecting and reinvesting dividends will want to either sell the dividend on the day before the ex-day (cum-day) or buy (or repurchase) the dividend on the exday.…”

Section: Ex-dividend Daymentioning

confidence: 99%

The price impact of the disposition effect on the ex-dividend day of NYSE and AMEX common stocks

Efthymiou

Leledakis

2014

Quantitative Finance

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We empirically test whether the disposition effect, the inclination of investors to sell winning stocks more readily than losing stocks, has an asymmetrical impact on the price adjustment on the ex-dividend day. Using aggregate market data for a sample of ordinary taxable dividends of common stocks listed in NYSE and AMEX during the 2001-2008 period, we employ the capital gains overhang proxy to measure accrued gains or losses for individual stocks. We find that stocks with accrued gains have a higher market adjusted price drop than stocks with accrued losses on the ex-dividend day. Moreover, there is a significantly positive relationship between the ex-day price drop and the capital gains overhang. Both results are attributed to the disposition effect since active (limited) selling by holders of winning (losing) stocks will most likely speed up (restrain) the downward price adjustment on the ex-dividend day. Our results remain robust to various ex-day price drop measures and different investor holding period lengths assumed.

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Ex dividend day stock price behavior: discreteness or tax-induced clienteles?

Cited by 231 publications

References 27 publications

Price adjustment method and ex-dividend day returns in a different institutional setting

Price adjustment method and ex-dividend day returns in a different institutional setting

A review of tax research

The price impact of the disposition effect on the ex-dividend day of NYSE and AMEX common stocks

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