Marginal Stockholder Tax Effects And Ex-Dividend Day Behavior
- Topics:
- Commercial Lending
- Tags:
- Dividend,
- Finance,
- Financial Planning,
- Free Trade,
- Taxes
- Source:
- New York Times Company
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Overview: This article test for ex-dividend effects on a sample that has not been previously examined: closed-end mutual funds. What makes this sample exciting is that it contains a set of securities (municipal bond funds) for which the ex-dividend price drop should be greater than the dividend if taxes matter as well as a set of securities (taxable bond and domestic common stock funds) for which the drop should in general be less than the dividend. 4 The difference in the ex-dividend day effects for these two groups allows us to differentiate tax effects from microstructure effects. Furthermore, our sample period, 1988 to 2001, encompasses two major changes in the post-tax value of dividends relative to capital gains for funds with dividends subject to tax, and one major change for the value of tax-free dividends. Examining ex-dividend day price behavior over these alternative tax regimes can further test the tax hypothesis. It show that the behavior of price changes with respect to dividends on the ex-day conforms to the theory that taxes determine the relative value of dividends vis-à-vis capital gains. This holds both for different types of closed-end funds and for the impact of changes in tax law within each type of fund. These results should finally put to bed the argument about the significance of taxes in determining the ex-dividend behavior of common stocks.
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Format: PDF | Size: 64KB | Date: Oct 2002 | Pages: 24
