Do Tax Law Changes Influence Ex‐Dividend Stock Price Behavior? Evidence from 1926 to 2005

Jeff Whitworth and Ramesh Rao ()

Financial Management, 2010, vol. 39, issue 1, 419-445

Abstract: We test the Elton and Gruber model of ex‐dividend stock pricing over a period spanning all US tax law changes since 1926. Our results indicate that price drop ratios (ΔP/D) and ex‐day returns are related to dividend and capital gains tax rates in the theorized manner. Consistent with tax clienteles, we also find that ex‐day price movements of higher dividend yield stocks are driven more by corporate tax rates, while lower yield stocks are more influenced by personal rates. Finally, we demonstrate that the positive relationship between ΔP/D and the dividend yield becomes stronger as the tax differential |td− tcg| widens.

Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
https://doi.org/10.1111/j.1755-053X.2010.01078.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:finmgt:v:39:y:2010:i:1:p:419-445

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0046-3892

Access Statistics for this article

Financial Management is currently edited by William G. Christie

More articles in Financial Management from Financial Management Association International Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().