Sharing the dividend tax credit pie: The influence of individual investors on ex-dividend day returns

Andrew Ainsworth and Adrian D. Lee

Journal of Financial Markets, 2023, vol. 62, issue C

Abstract: Taxes create distortions in financial markets. A tax credit attached to dividend payments in Australia creates a wedge in valuations as it can be utilized only by certain investors. Individual investors, who benefit most from the credit, buy aggressively cum-dividend and sell aggressively ex-dividend, demanding liquidity from institutional investors. Stocks with higher net purchases by individual investors operating through discount brokers in the cum-dividend period have ex-day returns that are 25 bps lower. The tax distortion allows individual investors to capture the tax credit and institutional investors to increase trading profits. Individual investor trading influences ex-dividend pricing.

Keywords: Dividend clienteles; Individual investors; Ex-dividend day premium; Order choice (search for similar items in EconPapers)
JEL-codes: G11 G14 G23 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:62:y:2023:i:c:s1386418122000325

DOI: 10.1016/j.finmar.2022.100740

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