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Beta and Return: Implications of Australia's Dividend Imputation Tax System

Author

Listed:
  • Robert Faff

    (School of Economics and Finance, Royal Melbourne Institute of Technology, Level 16. 339 Bourke Street, Melbourne VIC 3000.)

  • David Hillier

    (University of Strathclyde)

  • Justin Wood

    (Barclays Global Investors Australia.)

Abstract

US studies have consistently reported that the relationship between beta and return is less steeply sloped than that implied by the simple CAPM. The introduction of a dividend imputation tax system in Australia and other tax law differences suggest the relationship between beta and return may be more steeply sloped in this country. Empirical evidence subsequent to the introduction of the dividend imputation tax system in July 1987 supports this hypothesis. Further, it is found that no such change occurs in the US market over this time period, which strengthens the conclusion that the finding is tax-driven.

Suggested Citation

  • Robert Faff & David Hillier & Justin Wood, 2000. "Beta and Return: Implications of Australia's Dividend Imputation Tax System," Australian Journal of Management, Australian School of Business, vol. 25(3), pages 245-260, December.
    • Handle: RePEc:sae:ausman:v:25:y:2000:i:3:p:245-260
    DOI: 10.1177/031289620002500301
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    References listed on IDEAS

    as
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    Cited by:

    1. Robert Faff, 2014. "Alpha," Journal of Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 13(4), pages 607-622, December.
    2. Heaney, Richard & Koh, SzeKee & Lan, Yihui, 2016. "Australian firm characteristics and the cross-section variation in equity returns," Pacific-Basin Finance Journal, Elsevier, vol. 37(C), pages 104-115.
    3. Hoang, Khoa & Cannavan, Damien & Gaunt, Clive & Huang, Ronghong, 2019. "Is that factor just lucky? Australian evidence," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    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.

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