 |
An International Meeting of American Accounting
Association
|
The Effect of Changes in the Value of the Tax Timing Option and Overall Market Conditions on the Market Response to Large and Small Stock Distributions |
Dean Crawford
State University of New York at Oswego
Diana R. Franz
University of Toledo
Gerald J Lobo
University of Houston
Abstract: A widely cited finding from Grinblatt et al. (1984) (GMT) is that the market response to the announcement of stock distributions is greater for small distributions than for large ones. However, the GMT result does not hold in all time periods. We hypothesize that two macroeconomic effects may explain the presence of the GMT result in some time periods but not in others. First, changes in the tax law in the 1980’s and 1990’s affected the value of investors’ tax timing options, and therefore the value of stock distributions. Second, the period of abnormally high returns in the 1982-2000 bull market affected the value and credibility of managers’ signals. Both events changed how the pre-distribution share price is related to the size of the distribution and to the market’s response to the distribution announcement. These changes altered the association between the size of the distribution and the market response.