Odd-Lot Costs and Taxation Influences on Stock Dividend Ex-Dates

30 Pages Posted: 29 Nov 2004

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

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 the higher transaction cost of selling odd-lot share parcels compared to round-lot share parcels is a 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 transaction costs were charged to those issued when odd-lot costs were not evident. As odd-lot trade costs were eliminated from the New Zealand Stock Exchange on 1 October, 1991, the New Zealand market provides a unique opportunity to directly test the role, if any, that odd-lot transactions costs have in explaining stock dividend ex-date returns. We find that prior to October 1991 stock dividend ex-dates exhibit significantly positive returns, however, we do not find any significant ex-date return once the higher odd-lot transaction costs were removed. The New Zealand market also enables us to examine an imputation tax based argument of the ex-date price reaction and we find evidence that imputation tax credits have a value greater than zero.

Suggested Citation

Anderson, Hamish D. and Rose, Lawrence (Larry) Craig and Cahan, Steven F., Odd-Lot Costs and Taxation Influences on Stock Dividend Ex-Dates. Available at SSRN: https://ssrn.com/abstract=618309

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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