Why are US investors buying foreign dividends?
53 Pages Posted: 20 Jan 2022 Last revised: 9 Dec 2024
Date Written: April 14, 2023
Abstract
Motivated by recent concerns of abusive practices of ADR pre-releases and illegal refunds of tax credits, we investigate institutional trading of American Depositary Receipts (ADRs) around ex-dividend dates. 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. Tax-exempt US institutions net sell and—contrary to common wisdom—taxable US institutions net buy ADRs before ex-dividend dates. Institutions buy more ADRs when potential tax rebates are high. 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: Suggested Citation