Relationship between franking credits and the market risk premium: a comment

Lally, Martin

doi:10.1111/j.1467-629x.2007.00233.x

Cited by 8 publications

(14 citation statements)

References 9 publications

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“…The issue of dividend imputation and its relevance to cost of capital computations is raised by Officer (, ), Wood (), Truong et al . (), Gray and Hall (), Dempsey and Partington (), Truong and Partington (), Lally (), Gray and Hall () and Chu and Partington (). The primary issue here is the value of dividend imputation tax credits and its relevance to cost of capital computation.…”

Section: Relevance To Practicementioning

confidence: 99%

Fifty years of finance research in the Asia Pacific Basin

Benson

Faff

Smith

2014

Accounting & Finance

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In this paper, we review the history of scholarly finance research in the Asia Pacific Basin. We do this by analysing the four leading regional finance journals -Accounting and Finance, Australian Journal of Management, International Review of Finance and the Pacific-Basin Finance Journalalong five dimensions. The five dimensions are the most cited papers, noted authors, impact in terms of practice, research areas and a breakdown in terms of the development of the field according to Kuhnian concepts of normal science, anomalies and extraordinary science. We show that the Asia Pacific journals make a crucial contribution to research and practice both in the region and internationally.

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Section: Relevance To Practicementioning

confidence: 99%

Fifty years of finance research in the Asia Pacific Basin

Benson

Faff

Smith

2014

Accounting & Finance

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“…Lally (2008) makes several points in relation to the inconsistency identified by Gray and Hall (2006), each of which is considered below.…”

Section: The Lally Proposalmentioning

confidence: 99%

“…We demonstrate that if the Officer/regulatory model is to be maintained, the inconsistency can be resolved by following commercial practice in setting γ = 0. Truong and Partington (2008) and Lally (2008) propose alternative ways to resolve the inconsistency. These proposals involve maintaining the regulatory assumption that γ = 0.5 and abandoning the Officer framework.…”

Section: Introductionmentioning

confidence: 99%

“…In the present paper, we spell out precisely how the Officer model must be changed under the proposals of Truong and Partington (2008) and Lally (2008). We also show that regardless of whether the documented inconsistency is resolved by keeping the Officer model and setting γ = 0 (Gray and Hall, 2006), or abandoning the Officer model and maintaining γ = 0.5, the estimated after‐tax cost of equity must increase.…”

Section: Introductionmentioning

confidence: 99%

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Relationship between franking credits and the market risk premium: a reply

Gray

Hall

2008

Accounting & Finance

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We have previously documented an inconsistency between the dividend yield implied by the Officer (1994) model with standard Australian regulatory parameters and actual dividend yields of Australian companies. We have shown that, within the Officer framework, this inconsistency can be resolved by setting the assumed value of franking credits (&ggr;) to zero, consistent with the practice of Australian firms and independent valuation experts. Truong and Partington (2008) and Lally (2008) recognize this same inconsistency and propose alternate ways of resolving it. In this paper, we demonstrate that these proposals are outside the Officer framework. The standard set of regulatory parameters cannot be resolved with observed dividend yields within the Officer framework. Whichever method is used to resolve the inconsistency, the effect will be an increase in the estimated after-tax cost of equity. Copyright (c) The Authors.

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“…In contrast to other tax related asset pricing models (Lally, 2000;Lally and van Zijl, 2003;Monkhouse, 1993;Stulz, 1981;Wood, 1997), we don't define explicit foreign investment barriers in our model. Rather, we operationalize the endowment and status quo biases using a regret based utility function.…”

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confidence: 99%

Three essays on corporate finance modelling

Brotchie¹

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In this thesis I use mathematical modelling techniques to further our understanding of three outstanding corporate finance problems. In each case, I derive a novel model of agent behaviour, calculate an efficient numerical solution, and then explore how the model informs theory and practice. I present my contributions to each problem as separate selfcontained essays. In my third essay I derive a global asset pricing model with endogenous home preference that contains a small open economy with a dividend imputation tax system; Dividend imputation eliminates double taxation by attaching tax credits to distributed dividends for already paid company tax. Domestic investors can use these credits to reduce their personal taxes, while credits are useless to foreign investors. The interplay between imputation eligible domestic investors and ineligible foreign investors makes it difficult to value imputation credits. My model assumes that home bias arises endogenously from the status quo and endowment effect behavioural biases. I find that these biases interact with dividend imputation to drive domestic investors to hold highly concentrated domestic portfolios. I also find that risk-averse domestic investors cannot fully capture the value of imputation credits because concentrating their holdings in the domestic market reduces their diversification.

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Relationship between franking credits and the market risk premium: a comment

Cited by 8 publications

References 9 publications

Fifty years of finance research in the Asia Pacific Basin

Fifty years of finance research in the Asia Pacific Basin

Relationship between franking credits and the market risk premium: a reply

Three essays on corporate finance modelling

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