Capital Structure and the Ex-Dividend Day Return

Posted: 22 May 2005

See all articles by Dan W. French

Dan W. French

Lamar University; University of Missouri at Columbia

Paula L. Varson

St. Mary's University of San Antonio - Finance

Kenneth P. Moon

Texas State University, San Marcos - Department of Finance and Economics; University of Northern Colorado - Kenneth W. Montfort College of Business

Abstract

We apply an option-pricing framework to the ex-dividend behavior of common stocks. The framework explains the observed behavior of positive returns on the ex-dividend day and predicts that ex-dividend day returns will be higher for firms with greater financial leverage. Empirical testing supports the prediction. In contrast to prior studies, we find that dividend-capture activity has no significant impact on ex-dividend behavior, and we offer an explanation based on the importance of tick intervals.

Keywords: Option pricing, capital structure, financial leverage, dividends, ex-dividend return

JEL Classification: G12

Suggested Citation

French, Dan W. and Varson, Paula L. and Moon, Kenneth P., Capital Structure and the Ex-Dividend Day Return. Available at SSRN: https://ssrn.com/abstract=727328

Dan W. French (Contact Author)

Lamar University ( email )

PO Box 10745
Beaumont, TX 77710
United States
409-880-8603 (Phone)

University of Missouri at Columbia ( email )

Columbia, MO Columbia 65211
United States

Paula L. Varson

St. Mary's University of San Antonio - Finance ( email )

One Camino Santa Maria
San Antonio, TX 78228
United States

Kenneth P. Moon

Texas State University, San Marcos - Department of Finance and Economics ( email )

San Marcos, TX 78666
United States

University of Northern Colorado - Kenneth W. Montfort College of Business ( email )

Kepner Hall
800 17th Street
Greeley, CO 80639
United States

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