Tax-Induced Dividend Capturing

39 Pages Posted: 20 Sep 2010

See all articles by Oliver Zhen Li

Oliver Zhen Li

National University of Singapore (NUS)

Date Written: 2010-02

Abstract

I examine how institutions and individuals trade shares around ex-dividend days. I predict that institutions are more likely than individuals to capture dividends for tax purposes by buying shares of a stock before it goes ex-dividend. I infer the directions of trades and the identities of traders using trade and quote data. I find that both institutions and individuals increase their net buying activities on the last cum-dividend days, especially in high dividend yield stocks; and that institutions buy significantly more shares than individuals. There is no excess buying or selling of shares on the ex-dividend days. Further analysis suggests that dividend capturing activities are likely heavily driven by corporations. Finally, cum- and ex-day investor trading intensity, especially that from institutions, impacts the ex-day pricing of dividend in the predicted direction. These results suggest that institutions trade around ex-dividend days consistent with their tax preference.

Suggested Citation

Li, Oliver Zhen, Tax-Induced Dividend Capturing (2010-02). Journal of Business Finance & Accounting, Vol. 37, Issue 7-8, pp. 866-904, July/August 2010. Available at SSRN: https://ssrn.com/abstract=1677711 or http://dx.doi.org/10.1111/j.1468-5957.2010.02210.x

Oliver Zhen Li (Contact Author)

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

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