Tax Heist using American Depositary Receipts

55 Pages Posted: 20 Jan 2022 Last revised: 6 Feb 2024

See all articles by Jonathan Brogaard

Jonathan Brogaard

University of Utah - David Eccles School of Business

Dominik Rösch

State University of New York at Buffalo - School of Management

Date Written: April 14, 2023

Abstract

We investigate institutional trading of American Depositary Receipts (ADRs) around ex-dividend dates motivated by recent concerns of abusive practices of ADR pre-releases and illegal refunds of tax credits. Using data on US stocks, foreign stocks, and ADRs from 1999 to 2014, we document abnormally large trading volumes around ex-dividend dates, especially on ADRs, exacerbating price impact. Tax-exempt institutions net sell and---contrary to common wisdom---taxable institutions net buy ADRs before ex-dividend dates. We estimate that taxable US institutions potentially claim illegal tax refunds costing US and foreign tax payers more than US$150 million during our sample period.

Keywords: tax fraud, cum-ex, dividend, ADR

JEL Classification: G14, G23

Suggested Citation

Brogaard, Jonathan and Rösch, Dominik, Tax Heist using American Depositary Receipts (April 14, 2023). Available at SSRN: https://ssrn.com/abstract=4012824 or http://dx.doi.org/10.2139/ssrn.4012824

Jonathan Brogaard

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

HOME PAGE: http://www.jonathanbrogaard.com

Dominik Rösch (Contact Author)

State University of New York at Buffalo - School of Management ( email )

Jacobs Management Center
Buffalo, NY 14222
United States

HOME PAGE: http://dominikroesch.com

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