Why are US investors buying foreign dividends?

53 Pages Posted: 20 Jan 2022 Last revised: 9 Dec 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

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

Brogaard, Jonathan and Rösch, Dominik, Why are US investors buying foreign dividends? (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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