On the Valuation Effect in Ex-Dividend Day Anomalies: Evidence from Taiwan Stock Market

For the past 60 years, the majority of literature has documented that there are ex-dividend day anomalies in many equity markets, and the cause of the anomalies has been of primary interest to scholars in the financial field. This study examines whether there is valuation effect in ex-dividend day anomalies. In this study, the relationship between cash dividend event and the change of price-to-book ratio is first illustrated. Next, five testable hypotheses are derived, and the empirical model is demonstrated. Finally, cash dividend and stock dividend events in Taiwan equity market are used to test the hypotheses. Our findings show that on the ex-dividend days, there is valuation effect in stock returns and trading volumes for cash dividend events but there is, as expected, no such effect for stock dividend events. Our findings suggest that the change of price-to-book ratio may lead to ex-dividend day anomalies. This study provides an alternative explanation for ex-dividend day anomalies and may shed more lights on the role of price-to-book ratio in ex-dividend day anomalies.