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Institutional trading around the ex-dividend day

Author

Listed:
  • Andrew Ainsworth

    (Finance Discipline, The University of Sydney, Sydney, NSW, Australia)

  • Kingsley YL Fong

    (UNSW Business School, UNSW Australia, Sydney, NSW, Australia)

  • David R Gallagher

    (Centre for International Finance and Regulation, Sydney, NSW, Australia; UNSW Business School, UNSW Australia, Sydney, NSW, Australia; Macquarie Graduate School of Management, Sydney, NSW, Australia; Capital Markets CRC Limited, Sydney, NSW, Australia)

  • Graham Partington

    (Finance Discipline, The University of Sydney, Sydney, NSW, Australia)

Abstract

This study uses the trading records of institutional equity funds to examine their ex-dividend trading behaviour. We argue that trading is influenced by the tax incentives facing the fund, the characteristics of individual stocks and by changes in tax legislation. In aggregate, institutions trade to avoid the dividend and franking credit. Changes in tax incentives and the fund’s tax status also affect ex-dividend day trading, with unit trusts dominating the dividend avoidance trades. The results indicate that taxes, transactions costs and the cum-dividend price run-up influence the trading of institutional investors around the ex-dividend day.

Suggested Citation

  • 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.
    • Handle: RePEc:sae:ausman:v:41:y:2016:i:2:p:299-323
    DOI: 10.1177/0312896214539967
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Nicholas Pricha & Sean Foley & Graham Partington & Jiri Svec, 2016. "Underwritten Dividend Reinvestment Plans and Conflicts of Interest," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 43(9-10), pages 1361-1384, October.
    2. Aineas Kostas Mallios, 2023. "Manipulation in reported dividends: Empirical evidence from US banks," Economics Bulletin, AccessEcon, vol. 43(1), pages 441-461.
    3. Ainsworth, Andrew & Lee, Adrian D., 2023. "Sharing the dividend tax credit pie: The influence of individual investors on ex-dividend day returns," Journal of Financial Markets, Elsevier, vol. 62(C).
    4. Melia, Adrian & Chan, Howard & Docherty, Paul & Easton, Steve, 2018. "Explanations of cycles in seasoned equity offerings: An examination of the choice between rights issues and private placements," Pacific-Basin Finance Journal, Elsevier, vol. 50(C), pages 16-25.
    5. Yoonsoo Nam & Scott J Niblock & Elisabeth Sinnewe & Keith Jakob, 2018. "Do corporate directors ‘heap’ dividends? Evidence on dividend rounding and information uncertainty in Australian firms," Australian Journal of Management, Australian School of Business, vol. 43(3), pages 421-438, August.
    6. Liu, Wen-Rang & Chiang, Yao-Min & Chung, San-Lin, 2024. "Dividend-tax avoidance trade and its impact on the stock market," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).

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    More about this item

    Keywords

    Capital gains tax; dividends; ex-dividend day; institutional trading; tax credits;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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