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Odd-lot Costs and Taxation Influences on Stock Dividend Ex-dates

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  • Hamish D. Anderson
  • Lawrence C. Rose
  • Steven F. Cahan

Abstract

Abstract:  Past research has revealed significant abnormal ex-date returns for stock dividends even though the ex-date is known in advance and the distribution contains no new information. Various researchers have suggested that the higher transaction cost of selling odd-lot share parcels compared to round-lot share parcels is a key driver in the abnormal returns. However, no study to date has directly compared the ex-date price reaction of stock dividends distributed when odd-lot transaction costs were charged to those issued when odd-lot costs were not evident. As odd-lot trade costs were eliminated from the New Zealand Stock Exchange on 1 October, 1991, the New Zealand market provides a unique opportunity to directly test the role, if any, that odd-lot transactions costs have in explaining stock dividend ex-date returns. We find that prior to October 1991 stock dividend ex-dates exhibit significantly positive returns, however, we do not find any significant ex-date return once the higher odd-lot transaction costs were removed. The New Zealand market also enables us to examine an imputation tax based argument of the ex-date price reaction and we find evidence that imputation tax credits have a value greater than zero. Copyright Blackwell Publishers Ltd, 2004.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Business Finance & Accounting.

Volume (Year): 31 (2004-11)
Issue (Month): 9-10 ()
Pages: 1419-1448

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Handle: RePEc:bla:jbfnac:v:31:y:2004-11:i:9-10:p:1419-1448

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References

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Cited by:
  1. Kuo, Nan-Ting & Lee, Cheng-Few, 2013. "Effects of dividend tax and signaling on firm valuation: Evidence from taxable stock dividend announcements," Pacific-Basin Finance Journal, Elsevier, vol. 25(C), pages 157-180.

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