Odd-Lot Costs and Taxation Arguments for the Ex-Date Price Effects of Stock Dividends

Massey University, Department of Finance, Banking & Property Working Paper No. 02-04

41 Pages Posted: 22 Oct 2002

See all articles by Hamish D. Anderson

Hamish D. Anderson

Massey University - School of Economics and Finance

Lawrence C. Rose

Massey University

Steven F. Cahan

University of Auckland Business School

Date Written: August 2002

Abstract

Past research has revealed significant abnormal ex-date returns for stock dividends even though the ex-date is known in advance and the distribution contains no new information. Various researchers have suggested that odd-lot transaction costs faced by certain investors are the key driver in the abnormal returns. However, no study to date has directly compared the ex-date price reaction of stock dividends distributed when odd-lot trade costs were charged to those issued when odd-lot costs were not evident. A further tax-based argument has also been put forward to explain the price reaction to stock dividends when those dividends carry imputation tax credits. New Zealand stock dividends present a unique opportunity to directly test the odd-lot cost argument as well as examine the impact of New Zealand's imputation tax regime on stock dividend ex-dates. We find evidence to support the odd-lot transactions cost argument and also show that imputation tax credits have a value greater than zero.

Keywords: Stock Dividends, Ex-dates, Imputation Tax, Odd-lot Costs

JEL Classification: G14, G35, G38

Suggested Citation

Anderson, Hamish D. and Rose, Lawrence (Larry) Craig and Cahan, Steven F., Odd-Lot Costs and Taxation Arguments for the Ex-Date Price Effects of Stock Dividends (August 2002). Massey University, Department of Finance, Banking & Property Working Paper No. 02-04, Available at SSRN: https://ssrn.com/abstract=324740 or http://dx.doi.org/10.2139/ssrn.324740

Hamish D. Anderson (Contact Author)

Massey University - School of Economics and Finance ( email )

New Zealand

Lawrence (Larry) Craig Rose

Massey University ( email )

Private Bag 102-904
North Shore Mail Centre
Auckland, 0745
New Zealand
+64 9 4140800, ex 9558 (Phone)
+64 9 441 8150 (Fax)

Steven F. Cahan

University of Auckland Business School ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand

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