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Can firm-specific dividend drop-off ratios be used to infer shareholder marginal tax rates?

journal contribution
posted on 01.03.2020, 00:00 authored by A Ainsworth, Adrian LeeAdrian Lee, T Walter
© 2018 AFAANZ. In a seminal study, Elton and Gruber (1970) argue that ex-dividend day pricing can be used to infer marginal tax rates of shareholders. We examine ex-dividend day pricing for individual firms and ask whether their CFOs could use the history of a firm's ex-dividend price-drop ratios to infer reasonable estimates of shareholders' marginal tax rates. We use TAQ data for 1,124 US firms that have at least 30 ex-dividend days during the period August 1993 to October 2012. Our results show that ex-dividend day pricing is so noisy as to prohibit sensible estimates of shareholders' marginal tax rates.

History

Journal

Accounting and Finance

Volume

60

Issue

1

Pagination

507 - 534

Publisher

Wiley

Location

London, Eng.

ISSN

0810-5391

eISSN

1467-629X

Language

eng

Publication classification

C Journal article; C1.1 Refereed article in a scholarly journal