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Tax-Induced Dividend Capturing

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  • Oliver Zhen Li

Abstract

I examine how institutions and individuals trade shares around ex-dividend days. I predict that institutions are more likely than individuals to capture dividends for tax purposes by buying shares of a stock before it goes ex-dividend. I infer the directions of trades and the identities of traders using trade and quote data. I find that both institutions and individuals increase their net buying activities on the last cum-dividend days, especially in high dividend yield stocks; and that institutions buy significantly more shares than individuals. There is no excess buying or selling of shares on the ex-dividend days. Further analysis suggests that dividend capturing activities are likely heavily driven by corporations. Finally, cum- and ex-day investor trading intensity, especially that from institutions, impacts the ex-day pricing of dividend in the predicted direction. These results suggest that institutions trade around ex-dividend days consistent with their tax preference. Copyright (c) 2010 Blackwell Publishing Ltd.

Suggested Citation

  • Oliver Zhen Li, 2010. "Tax-Induced Dividend Capturing," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(7-8), pages 866-904.
  • Handle: RePEc:bla:jbfnac:v:37:y:2010-07:i:7-8:p:866-904
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    References listed on IDEAS

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    Cited by:

    1. 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.

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