IDEAS home Printed from https://ideas.repec.org/a/bla/acctfi/v48y2008i1p133-142.html
   My bibliography  Save this article

Relationship between franking credits and the market risk premium: a reply

Author

Listed:
  • Stephen Gray
  • Jason Hall

Abstract

We have previously documented an inconsistency between the dividend yield implied by the Officer (1994) model with standard Australian regulatory parameters and actual dividend yields of Australian companies. We have shown that, within the Officer framework, this inconsistency can be resolved by setting the assumed value of franking credits (γ) to zero, consistent with the practice of Australian firms and independent valuation experts. Truong and Partington (2008) and Lally (2008) recognize this same inconsistency and propose alternate ways of resolving it. In this paper, we demonstrate that these proposals are outside the Officer framework. The standard set of regulatory parameters cannot be resolved with observed dividend yields within the Officer framework. Whichever method is used to resolve the inconsistency, the effect will be an increase in the estimated after‐tax cost of equity.

Suggested Citation

  • Stephen Gray & Jason Hall, 2008. "Relationship between franking credits and the market risk premium: a reply," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 48(1), pages 133-142, March.
    • Handle: RePEc:bla:acctfi:v:48:y:2008:i:1:p:133-142
    DOI: 10.1111/j.1467-629X.2007.00243.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-629X.2007.00243.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1467-629X.2007.00243.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Stephen Gray & Jason Hall, 2006. "Relationship between franking credits and the market risk premium," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 46(3), pages 405-428, September.
    2. Giang Truong & Graham Partington, 2008. "Relation between franking credits and the market risk premium: a comment," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 48(1), pages 153-158, March.
    3. Martin Lally, 2008. "Relationship between franking credits and the market risk premium: a comment," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 48(1), pages 143-151, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Simshauser, P., 2022. "On dividends and market valuations of Australia’s listed electricity utilities: regulated vs. merchant," Cambridge Working Papers in Economics 2229, Faculty of Economics, University of Cambridge.
    2. Simshauser, Paul, 2023. "On dividend policy and market valuations of Australia’s listed electricity utilities: Regulated vs. merchant," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 696-715.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kai-Wei (Shaun) Siau & Stephen J. Sault & Geoffrey J. Warren & Henk Berkman, 2015. "Are imputation credits capitalised into stock prices?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 55(1), pages 241-277, March.
    2. Fenech, Jean-Pierre & Skully, Michael & Xuguang, Han, 2014. "Franking credits and market reactions: Evidence from the Australian convertible security market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 1-19.
    3. Michael Dempsey, 2015. "Stock Markets, Investments and Corporate Behavior:A Conceptual Framework of Understanding," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number p1007, January.
    4. Mike Dempsey & Graham Partington, 2008. "Cost of capital equations under the Australian imputation tax system," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 48(3), pages 439-460, September.
    5. Giang Truong & Graham Partington, 2008. "Relation between franking credits and the market risk premium: a comment," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 48(1), pages 153-158, March.
    6. Tim Brailsford & John C. Handley & Krishnan Maheswaran, 2008. "Re‐examination of the historical equity risk premium in Australia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 48(1), pages 73-97, March.
    7. Jeffrey J. Coulton & Caitlin Ruddock, 2011. "Corporate payout policy in Australia and a test of the life‐cycle theory," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 51(2), pages 381-407, June.
    8. Clive Gaunt & Steven Cahan, 2014. "Accounting and Finance: authorship and citation trends," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 54(2), pages 441-465, June.
    9. Martin Lally, 2008. "Relationship between franking credits and the market risk premium: a comment," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 48(1), pages 143-151, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:acctfi:v:48:y:2008:i:1:p:133-142. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/aaanzea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.