Taxes and Ex–day Returns: Evidence from Germany and the U.K
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.
Volume (Year): 61 (2008)
Issue (Month): 4 (December)
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