Ex-day Returns in the Taiwan Market: Tax and Clientele Effects

Abstract

We investigated how ex-day prices reacted to the introduction of a dividend imputation system to Taiwan in 1998. Under this system, domestic individual shareholders pay taxes on dividends with fully refundable tax credits. We found a decline in ex-day abnormal returns after the tax reform. Ex-day abnormal returns are positively (negatively) related to dividend yields for the low-yield (high-yield) stocks in the post-imputation period. The results support the tax-based explanations.

Keywords:

• Ex-day price
• dividend imputation syste
• abnormal returns