Investment, the Corporate Tax Rate, and the Pricing of Franking Credits

28 Pages Posted: 30 Jul 2018 Last revised: 5 Apr 2019

See all articles by Peter L. Swan

Peter L. Swan

University of New South Wales (UNSW Sydney; Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: March 21, 2019


I apply a new single-pass CAPM methodology for assessing systematic risk to all ASX stocks which indicates that securities which pay franking credits in Australia appear to face far less systematic risk than do stocks that never pay franking credits. But in this context, this apparent reduction in systematic risk can be interpreted as being due to franking credits that are close to being fully priced. An efficient equilibrium is reached in which the marginal investor in Australia pays little or no Australian corporate tax because, once she exhausts compulsory savings, she borrows offshore and converts debt to equity.

Keywords: Franking credit, imputation benefit, corporate tax, investment, small country

JEL Classification: G11, G12, G15, G18

Suggested Citation

Swan, Peter Lawrence, Investment, the Corporate Tax Rate, and the Pricing of Franking Credits (March 21, 2019). 31st Australasian Finance and Banking Conference 2018, Available at SSRN: or

Peter Lawrence Swan (Contact Author)

University of New South Wales (UNSW Sydney ( email )

School of Banking and Finance
UNSW Business School
Sydney NSW, NSW 2052
+61 2 9385 5871 (Phone)
+61 2 9385 6347 (Fax)

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Financial Research Network (FIRN)

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


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