Imputation Credits and Trading Around Ex-Dividend Day: New Evidence in Australia

34 Pages Posted: 30 Jul 2018

See all articles by Andrew R. Grant

Andrew R. Grant

University of Sydney - Discipline of Finance, Faculty of Economics and Business; Financial Research Network (FIRN)

P. Joakim Westerholm

University of Sydney Business School; Financial Research Network (FIRN)

Winston Wu

University of Sydney, Business School, Discipline of Finance, Students

Date Written: July 28, 2018

Abstract

This study examines the ex-day trading behaviour using daily ownership records aggregated by investor class under the novel environment of Australia. Domestic shareholders who have a strong preference for imputation credits capture franking credits by buying fully-franked stocks cum-dividend and selling them ex-dividend; the opposite is true for foreign shareholders. Dividend yield is the determinant factor of the choice of stock for the transfer of franking credits whereas risks and transaction costs are less relevant. We do not attribute our results to ex-day trading, arguing that, due to the 45-day holding period requirement, ownership transfer should take place at a longer horizon. Furthermore, domestic institutions act as liquidity providers to foreign investors and domestic individuals, who tend to initiate trading before the stock goes ex-dividend.

Keywords: Dividend imputation; Ex-dividend day; Dividend Clientele

JEL Classification: G35; G38

Suggested Citation

Grant, Andrew R. and Westerholm, P. Joakim and Wu, Winston, Imputation Credits and Trading Around Ex-Dividend Day: New Evidence in Australia (July 28, 2018). 31st Australasian Finance and Banking Conference 2018. Available at SSRN: https://ssrn.com/abstract=3221900 or http://dx.doi.org/10.2139/ssrn.3221900

Andrew R. Grant

University of Sydney - Discipline of Finance, Faculty of Economics and Business ( email )

P.O. Box H58
Sydney, NSW 2006
Australia
61-2-9036-7991 (Phone)

Financial Research Network (FIRN)

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

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

P. Joakim Westerholm

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Financial Research Network (FIRN)

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

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

Winston Wu (Contact Author)

University of Sydney, Business School, Discipline of Finance, Students ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

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