The Capitalization Effect of Imputation Credits on Expected Stock Returns

54 Pages Posted: 27 Dec 2019

See all articles by Anh Le

Anh Le

School of Economics, Finance and Marketing, RMIT University; Financial Research Network (FIRN)

Xiangkang Yin

Deakin University; Financial Research Network (FIRN)

Jing Zhao

La Trobe University - La Trobe Business School

Date Written: November 1, 2019

Abstract

This paper develops an equilibrium model featuring heterogeneity in investor risk tolerance across different risk sources. Using Australian data, it confirms the theoretical predictions of the model, by showing that a higher imputation credit yield in one year leads to a lower stock return in the next year, and this negative relationship between imputation credit yield and stock return is weaker for stocks with higher idiosyncratic risk, of larger size and with a higher trading turnover. Our theoretical and empirical evidence favours the aggregation approach in explaining the capitalization effect of imputation credits over the marginal investor approach.

Keywords: Dividend imputation; Taxation; Stock returns; Risk tolerance

JEL Classification: G10, G12, H20, M40

Suggested Citation

Le, Anh and Yin, Xiangkang and Zhao, Jing, The Capitalization Effect of Imputation Credits on Expected Stock Returns (November 1, 2019). Available at SSRN: https://ssrn.com/abstract=3499304 or http://dx.doi.org/10.2139/ssrn.3499304

Anh Le (Contact Author)

School of Economics, Finance and Marketing, RMIT University ( email )

Building 80, 445 Swanston Street
Melbourne, Victoria 3000
Australia
+61 3 9925 1220 (Phone)

Financial Research Network (FIRN) ( email )

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

Xiangkang Yin

Deakin University ( email )

Melbourne, Victoria
Australia

Financial Research Network (FIRN)

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

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

Jing Zhao

La Trobe University - La Trobe Business School ( email )

Australia

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