The Tax Impact on the Ex-Dividend Dates: Evidence from European Firms

49 Pages Posted: 19 Jul 2003

See all articles by Maria P. Zenonos

Maria P. Zenonos

City University London - Faculty of Finance

Meziane Lasfer

Bayes Business School, City, University of London

Date Written: July 2, 2003

Abstract

In this paper we examine the behaviour of share prices around the ex-dividend dates across four major European countries: France, Germany, Italy and the UK. We analyse the tax system and tax reforms in each country and test the hypothesis that if taxation is the sole determinant of ex-day prices, then differences in ex-day returns across these countries should be directly related to each country's tax differentials between dividends and capital gains. We find that in all countries ex-day returns are positive and significant and in countries where the differential between dividends and capital gains is high (low), ex-day returns are high (low). We also find that changes in the tax systems that affect taxes on dividend and/or capital gains altered significantly ex-day returns. Further tests indicate that ex-day returns are not affected by transaction cost and market microstructure effects. Our results provide support for the tax hypothesis.

Keywords: Income and capital gains taxes in Europe, Ex-day pricing, Short-term trading

Suggested Citation

Zenonos, Maria P. and Lasfer, Meziane, The Tax Impact on the Ex-Dividend Dates: Evidence from European Firms (July 2, 2003). EFA 2003 Annual Conference Paper No. 885, Cass Business School Research Paper, Available at SSRN: https://ssrn.com/abstract=423880 or http://dx.doi.org/10.2139/ssrn.423880

Maria P. Zenonos

City University London - Faculty of Finance ( email )

London, EC2Y 8HB
Great Britain

Meziane Lasfer (Contact Author)

Bayes Business School, City, University of London ( email )

106 Bunhill Row
London, EC1Y 8TZ
Great Britain
+44 20 7040 8634 (Phone)
+44 20 7040 8881 (Fax)

HOME PAGE: http://https://www.bayes.city.ac.uk/faculties-and-research/experts/meziane-lasfer

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