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Ex-dividend Returns and the Tax Reform Act of 1986

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  • Siddiqi, Mazhar A

Abstract

As previously recognized, the Tax Reform Act of 1986 reduced observed ex-day returns to stocks that do not attract dividend capture trading. However, by decreasing the top corporate tax rate, and decreasing the corporate dividend income deduction, the Act also reduced the return to dividend capture by U.S. corporations. The ex-day returns for stocks that had previously attracted corporate dividend capture should therefore increase. This prediction is consistent with evidence that ex-day returns increased after the Act was implemented, among low-transaction cost, high-dividend yield stocks and among low-risk, high-dividend yield stocks. Copyright 1997 by MIT Press.

Suggested Citation

  • Siddiqi, Mazhar A, 1997. "Ex-dividend Returns and the Tax Reform Act of 1986," The Financial Review, Eastern Finance Association, vol. 32(1), pages 71-86, February.
    • Handle: RePEc:bla:finrev:v:32:y:1997:i:1:p:71-86
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    Cited by:

    1. Hodgkinson, Lynn & Partington, Graham, 2013. "Capital gains tax, managed funds and the value of dividends: The case of New Zealand," The British Accounting Review, Elsevier, vol. 45(4), pages 271-283.

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