New Share Issues and the Cross-Section of Equity Returns Under a Dividend Imputation Tax System

35 Pages Posted: 16 Dec 2013

See all articles by Adrian Melia

Adrian Melia

University of Newcastle (Australia)

Paul Docherty

The Brattle Group

Stephen Andrew Easton

University of Newcastle

Date Written: December 15, 2013

Abstract

This article is the first to comprehensively examine the net share issuance anomaly under a dividend imputation tax system in Australia. The dividend imputation taxation system leads to the increased payout of dividends and the subsequent need for replacement capital that firms have an increased incentive to replace using new share issues (Balachandran, Faff, & Theobald, 2008; Twite, 2001). The Australian market is also characterised by a high concentration of share ownership (Balachandran, Faff, Theobald, & Van Zijl, 2012). These factors that shape the environment in Australia provide a unique setting in which to test for the pervasiveness and economic effect of this anomaly outside of the US. Using portfolio sorts and cross-sectional regressions we find a negative relationship between returns and share issuance in large and small firms, with time-series regressions illustrating the share issuance effect in larger firms with low book-to-market values.

Keywords: Asset Pricing, Share Issues, Share Issuance, Return Predictability, Dividend Imputation, Anomalies, Fama-French model

JEL Classification: G12, G14

Suggested Citation

Melia, Adrian and Docherty, Paul and Easton, Stephen Andrew, New Share Issues and the Cross-Section of Equity Returns Under a Dividend Imputation Tax System (December 15, 2013). 2014 Financial Markets & Corporate Governance Conference, Available at SSRN: https://ssrn.com/abstract=2368085 or http://dx.doi.org/10.2139/ssrn.2368085

Adrian Melia (Contact Author)

University of Newcastle (Australia) ( email )

University Drive
Callaghan, NSW 2308
Australia

Paul Docherty

The Brattle Group ( email )

44 Brattle Street
3rd Floor
Cambridge, MA 02138-3736
United States

Stephen Andrew Easton

University of Newcastle ( email )

University Drive
Callaghan, nsw 2308
Australia

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