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Price and Volume Behavior around the Ex‐dividend Day: Evidence on the Value of Dividends from American Depositary Receipts and their Underlying Australian Stocks

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  • AELEE JUN
  • V. T. ALAGANAR
  • GRAHAM PARTINGTON
  • MAX STEVENSON

Abstract

Australian residents are tax‐advantaged, relative to American investors, in their access to imputation tax credits on Australian stocks. This paper provides evidence consistent with a difference in dividend valuations between Australian stocks and their American Depositary Receipts (ADRs). The ex‐dividend drop‐off ratio is lower for ADRs relative to their underlying Australian stocks and this difference is most pronounced for stocks that have imputation tax credits and high dividend yields. Consistent with dividend capture trading in the Australian market, the difference in drop‐off ratios is driven by both temporarily higher Australian cum‐prices and temporarily lower Australian ex‐prices. Abnormal trading volume about the ex‐day is present in both markets and in the Australian market the abnormal volume is greater for dividends with imputation tax credits. Dividend‐related trading leads to price differences across the markets on the ex‐dividend day. Price differences are also observed when the stock and the ADR trade with different dividend entitlements due to different ex‐dividend dates.

Suggested Citation

  • Aelee Jun & V. T. Alaganar & Graham Partington & Max Stevenson, 2008. "Price and Volume Behavior around the Ex‐dividend Day: Evidence on the Value of Dividends from American Depositary Receipts and their Underlying Australian Stocks," International Review of Finance, International Review of Finance Ltd., vol. 8(1‐2), pages 21-55, March.
    • Handle: RePEc:bla:irvfin:v:8:y:2008:i:1-2:p:21-55
    DOI: 10.1111/j.1468-2443.2008.00073.x
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    2. Andrew Ainsworth & Kingsley YL Fong & David R Gallagher & Graham Partington, 2016. "Institutional trading around the ex-dividend day," Australian Journal of Management, Australian School of Business, vol. 41(2), pages 299-323, May.
    3. Nguyen Ngoc Anh Le & Xiangkang Yin & Jing Zhao, 2020. "Effects of investor tax heterogeneity on stock prices and trading behaviour around the ex‐dividend day: the case of Australia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(4), pages 3775-3812, December.
    4. Aelee Jun & Graham H. Partington, 2014. "Taxes, International Clienteles and the Value of ADR Dividends," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 41(9-10), pages 1337-1360, November.
    5. Cannavan, Damien & Gray, Stephen, 2017. "Dividend drop-off estimates of the value of dividend imputation tax credits," Pacific-Basin Finance Journal, Elsevier, vol. 46(PB), pages 213-226.
    6. Hansi Hu & Terry Walter, 2023. "Dividend imputation taxes and the curious case of a price premium between BHP and Billiton American depositary receipts," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(1), pages 691-717, March.
    7. 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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