The value of dividends: Evidence from cum-dividend trading in the ex-dividend period

Scott Walker () and Graham Partington
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Graham Partington: University of Sydney

Published Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: What is the market value of a dollar of fully franked dividends? We address this question by exploiting a new phenomenon in the Australian capital market—the trading of shares cum-dividend during the ex-dividend period. This allows a relatively clean measurement of the combined value of dividends and the associated tax effects net of transactions costs. Consistent with the theoretical model that we develop, the evidence from this sample is that one dollar of fully franked dividends, after tax effects and transaction costs, is worth significantly more than one dollar. We also show that, in contrast to our measure, the traditional measure of the ex-dividend price drop-off, based on close to close prices, has a lower average value and exhibits substantially more cross sectional variation.

Pages: 22 pages
Date: 1999-01-01
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Published in: Walker, S. and Partington, G., 1999, "The Value of Dividends: Evidence from Cum-Dividend Trading in the Ex-Dividend Period", Accounting and Finance, 39(3), 275-296.

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