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Ex-Dividend-Day Price Behavior: An International Evidence
J. Thomas Connelly, Chulalongkorn University
Larry Gorman, California Polytechnic State University
Piman Limpaphayom, Sasin Graduate Institute Of Business Administration Of Chulalongkorn University
Robert A. Weigand, Washburn University
ABSTRACT. This study investigates the movements of stock prices on ex-dividend days in 37 international markets. It is hypothesized that, in addition to taxes, other market frictions should also affect price movements on ex-dividend days in these markets. Empirical results show that average price drop ratios deviate significantly from the predicted values based on the differences between tax rates on dividends and capital gains in each of the markets. Further analyses reveal that proxies of agency conflicts and information asymmetry can explain cross-country deviations. After controlling for those factors, the weighted average of investors’ tax rate is reflected in the ex-dividend day price movements. The results provide support to the hypothesized impact of agency conflicts and information asymmetry on ex-dividend day price movements and are broadly consistent with the notion that investors are rational and, therefore, react to frictions in financial markets.
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