Ex-dividend Day Shareholder Behavior: Impacts of the Imputation Tax Credit System.
Date Issued
2005
Date
2005
Author(s)
Shen, Wen-Chen
DOI
zh-TW
Abstract
Before the change on the first of January 1998, dividend income was double taxed for both the personal income tax and corporate income tax in Taiwan. A new income tax law became effective which began to take the corporate income tax as tax credit when shareholders file their personal income tax. Under the new income tax law, corporate income tax at 25% flat rate becomes tax credit of 33.33% deductible for shareholders’ income tax. According to Taiwanese taxation, however, companies in the tech sector normally receive tax incentive and have less corporate income tax than normal 25%.
This study empirically examined whether major shareholders (holding 1000 thousand shares and more) behave differently from minor shareholders (holding 50 thousand shares and less) under the new tax law on the ex-dividend day. The purpose of this study is to discuss the following questions:
i) Under the new taxation, will major shareholders sell shares before ex-dividend day and buy back shares afterwards? Will minor shareholders be motivated to buy shares before ex-dividend day to enjoy tax return?
ii) Will the corporate tax subsidy in the tech sector and non-tech sector change the behavior of major shareholders as well as minor shareholders?
iii) The period from the annual general meeting to ex-dividend, will major shareholders sell out their shareholding to avoid income tax?
This study sampled listed companies and empirically examined their shareholding data in the period between 1997 and 2004. Before and after the new tax law, major shareholders have not shown any significance in their shareholding on ex-dividend day. On the other hand, motivated by tax incentive minor shareholders have significantly increased shareholding. Trading volume has increased before ex-dividend day, because minor shareholders with low income tax normally are encouraged to receive tax return by investing shares. Major shareholders in the non-tech sector have shown the increase of holding on ex-dividend day, since they enjoy higher disposal income under the new tax system. Major shareholders in the tech sector have shown a negative attitude toward the participation of dividend payout.
Subjects
兩稅合一
大股東
小股東
Tax Credit System
major shareholders
minor shareholders
Type
other
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