Ex‐Effects: Taxes, Transactions Costs and the Short‐Term Trading Hypothesis

Davidson, Ian

doi:10.1111/j.1468-5957.1991.tb00599.x

Cited by 3 publications

(1 citation statement)

References 16 publications

(14 reference statements)

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“…Lasfer (1995) also demonstrated that transaction costs, measured in several ways, did not effect ex-dividend day returns in the UK. Several researchers (Davidson, 1991;Boyd and Jagannathan, 1994) demonstrate that transaction costs will provide boundaries for trading but will not distinguish between classes of marginal trader without knowing individual marginal tax rates. Given the evidence of this prior research, and given that the transaction cost regime was fixed for individual participants in the New Zealand market in the relevant time period, transaction costs are not included in this analysis.…”

Section: New Zealand Institutional Characteristicsmentioning

confidence: 99%

Ex‐dividend Day Pricing in New Zealand

Bartholdy

Brown

1999

Accounting & Finance

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Controversy continues over the question of tax clientele effects in the pricing of shares that pay dividends. The empirical results remain inconclusive, with variations in testing methods and sample formation the probable causes of much of the variation in outcomes. This study focuses on testing for the presence of a tax clientele effect consistent with prior tests for the same effect using a sample from a particular tax regime period in New Zealand in which companies could pay either or both taxable and non-taxable dividends. The results are generally consistent with the presence of a tax clientele effect in the New Zealand market for the time period, while providing essentially no support for the short term trading hypothesis.

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Section: New Zealand Institutional Characteristicsmentioning

confidence: 99%

Ex‐dividend Day Pricing in New Zealand

Bartholdy

Brown

1999

Accounting & Finance

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Ex—dividend day stock price falls on the Spanish stock market

Espitia¹,

Ruiz²

1997

Applied Financial Economics

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The Cost of Equity Capital at the Corporate and Investor Levels Allowing a Rational Expectations Model with Personal Taxations

Dempsey

1996

Business Fin & Account

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A firm's cost of equity capital is an opportunity cost, reflecting what the shareholders can expect to obtain elsewhere for the same level of risk. I t follows that enquiry into the cost of equity capital a t the corporate (prepersonal tax) level must consider the implications of shareholders' individual assessments of their required returns, made on a post-personal tax basis. The difficulty encountered in formulating such a framework is that the relationship between earnings a t the corporate level and a t the post-personal tax level ii dependent on how shareholders receive their return: via dividends less income tax or via capital gains less capital gains tax. One way of avoiding the problem (the US preferred approach) is to assume that investors receive their returns as some combination of dividends and capital gains that are liable to some overall or 'effective' rate of taxation. The relationship between a firm's returns on a net-of-corporate-tax and on a net-of-personal tax basis is therefore established, at least algebraically; and the analysis for the impact of investors' expectations on a firm's cost of capital is able to proceed. However, such an overall or 'effective' rate of taxation fails to exploit the essential interrelationship between a firm's dividends and capital gains. Subsequent analyses thereby fail to provide an insight into the nature of the structural problem faced by firms in their bid to maximise their shareholders' afterpersonal tax returns.In the context of a UK imputation tax system, the problem has been explicitly recognised by Ashton (1989aAshton ( , 1989bAshton ( and 1991. Ashton argues that it may be reasonable empirically to assume that td = ti (where t d , tb represent, respectively, the effective aggregates of investors' marginal tax positions on their dividends and capital gains), so that the problem of how shareholders receive their returnas dividend or capital gainis avoided. Ashton refers to the position as the assumption of the tax irrelevancy of dividend policy.

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Ex‐Effects: Taxes, Transactions Costs and the Short‐Term Trading Hypothesis

Cited by 3 publications

References 16 publications

Ex‐dividend Day Pricing in New Zealand

Ex‐dividend Day Pricing in New Zealand

Ex—dividend day stock price falls on the Spanish stock market

The Cost of Equity Capital at the Corporate and Investor Levels Allowing a Rational Expectations Model with Personal Taxations

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