The Impact of Tax on Abnormal Return during Ex-dividend Days under the Imputation Tax Credit System
Date Issued
2009
Date
2009
Author(s)
Chen, Pei-Yu
Abstract
In Taiwan, imputation tax credit system has been implemented since January 1st, 1998. We want to investigate the effect on investor‘s behavior resulted from tax consideration before and after ex-dividend day. The sample is selected from firms listed in the Taiwan Stock Exchange from 2002 to 2007. The empirical results are summarized as follows: . Imputation tax credit ratios and dividend yield have a positive impact on abnormal return before ex-dividend day and a negative impact after ex-dividend day. . The ratio of shares owned by natural person and dummy variable of electronics industry have a negative impact on abnormal return before ex-dividend day and a positive impact after ex-dividend day. In addition, we find that there is a significant negative correlation between AR(-3) and CAR(-2,1). We claim that due to institutional investors have tax-free dividends, they may buy the stock sold by individual investors who don‘t want to pay dividend tax. We also find that with higher ratio of shares owned by natural person and imputation tax credit ratios, higher return is earned. Furthermore, we test if individual investors use the same strategy to catch abnormal return. We find that all individual investors can earn abnormal return from the stock whose imputation tax credit ratio is below 25%, but only the investors whose margin tax rate is below 6% can earn abnormal return from the stock whose imputation tax credit ratio is above 25%. And we also find that "High dividend fund" can earn abnormal return during ex-dividend season.
Subjects
Imputation tax system
ex-dividend
abnormal return
ownership structure
imputation tax credit ratio
Type
thesis
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