Are Imputation Credits Capitalised into Stock Prices?

37 Pages Posted: 11 Mar 2015

See all articles by Kai‐Wei (Shaun) Siau

Kai‐Wei (Shaun) Siau

Hong Leong Investment Bank

Stephen Sault

Australian National University (ANU); Financial Research Network (FIRN)

Geoff Warren

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics

Date Written: March 2015

Abstract

We investigate whether imputation tax credits are capitalised into Australian stock prices by utilising discounted cash‐flow valuation models and examining the relation between earnings yields and imputation credit yields. While imputation credits are valuable to many investors, the evidence that they are reflected in share prices is at best mixed and largely unconvincing. Our results reveal that imputation credits fail to lower realised returns casting doubts over whether imputation credits are priced from the perspective of longer‐term buy‐and‐hold investors. If so, such investors can expect to fully benefit from their imputation credits, and imputation effects may not impact on the cost of capital.

Keywords: Dividend imputation, Share valuation, Cost of capital

Suggested Citation

Siau, Kai‐Wei (Shaun) and Sault, Stephen and Warren, Geoffrey J., Are Imputation Credits Capitalised into Stock Prices? (March 2015). Accounting & Finance, Vol. 55, Issue 1, pp. 241-277, 2015. Available at SSRN: https://ssrn.com/abstract=2576497 or http://dx.doi.org/10.1111/acfi.12058

Kai‐Wei (Shaun) Siau (Contact Author)

Hong Leong Investment Bank

Kuala Lumpur
Malaysia

Stephen Sault

Australian National University (ANU) ( email )

Canberra ACT 0200, 2601
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Geoffrey J. Warren

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics ( email )

CBE Building 26C
Kingsley Sreet, Acton
Canberra, ACT 0200
Australia

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