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Taxes and Ex–Day Returns: Evidence From Germany and the U.K

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  • Lasfer, Meziane

Abstract

I analyze the tax systems and tax reforms in Germany and the U.K. and test the hypothesis that ex–day returns are related to each country’s tax differential between dividends and capital gains. The results indicate that in the U.K., where this tax differential is high and short–term trading is regulated, ex–day returns are higher, and the market microstructure and short–term trading impacts are weak. In contrast, in Germany, the tax impact is mitigated by short–term trading and market microstructure effects. The results suggest that despite their dividend tax similarities, the institutional differences between the two countries lead to different determinants of ex–day returns.

Suggested Citation

  • Lasfer, Meziane, 2008. "Taxes and Ex–Day Returns: Evidence From Germany and the U.K," National Tax Journal, National Tax Association;National Tax Journal, vol. 61(4), pages 721-742, December.
    • Handle: RePEc:ntj:journl:v:61:y:2008:i:4:p:721-42
    DOI: 10.17310/ntj.2008.4.08
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    Cited by:

    1. Ming-Chang Cheng & Ching-Hwa Lee, 2016. "Trading Activities Around Ex-Dividend Days: Evidence from the Taiwan Stock Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(01), pages 1-17, March.
    2. Magron, Camille & Merli, Maxime, 2015. "Repurchase behavior of individual investors, sophistication and regret," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 15-26.
    3. Oliver Zhen Li, 2010. "Tax-Induced Dividend Capturing," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(7-8), pages 866-904.
    4. Felix Kreidl, 2020. "Stock-Market Behavior on Ex-Dates: New Insights from German Stocks with Tax-Free Dividend," IJFS, MDPI, vol. 8(3), pages 1-21, September.
    5. Oliver Zhen Li, 2010. "Tax‐Induced Dividend Capturing," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(7‐8), pages 866-904, July.

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