An empirical investigation of the tax and transaction costs effects of dividends.

摘要

The taxability of corporate dividend income and its impact on share valuation by investors is an important field of inquiry in Finance. Central to this area is the analysis of returns behavior on the ex-dividend day. This thesis focussed on two specific aspects of this inquiry. The first question pertained to the general question of whether the dividend yield of the security affects its ex-dividend day returns. The results indicate that while the returns to equivalent beta-risk portfolios increase with respect to dividend yield over a certain range of dividend yield, the returns drop off in the high dividend yield category with the highest dividend yield portfolio consistently showing the lowest returns.;The second question pertained to the determinants of ex-dividend day returns and hence focussed more closely on the various theories applicable here. The first of these tests sought to delineate the supposed tax premium from other contaminating effects by comparing the ex-dividend day returns of a stock before and after it had undergone a change in dividend yield. Limited evidence was found in favor of a tax premium here. This evidence was predominantly for the lower dividend yield securities. The second test was suggested by a model developed in this thesis. This model, based on an existing model of heterogenous opinion suggested by Mayshar, aggregates the valuation of a diverse group of investors, and predicts a relationship between ex-dividend day returns and the two variables dividend yield and the level of transaction costs. The empirical results in this thesis indicate a limited support for the pricing of transaction costs.;To conclude, the tax premium was found to be confined to the lower dividend yield stocks, while the transactions costs premium implied by the short-term trading theories were only found in the low transaction costs period. Thus investors involved in the pricing of security prices on the ex-dividend day differ across securities depending on the dividend yield of the security and the level of transaction costs, and these factors are reflected in ex-dividend day returns.