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This paper aims to explore the potential use of a dividend capture strategy by individual investors. This strategy arises from the 2003 tax law changes which lowered tax rates on dividends received, while leaving the short‐term tax rates on capital losses unchanged. In addition, leverage can be used in combination with an aggressive call‐writing strategy to receive a multiple of the tax‐advantaged dividend yield without a corresponding increase in risk.

In addition to illustrating how the dividend capture strategy works, a new method of comparing returns between strategies is developed. This method does not rely on a particular risk‐return model, such as is used by the Sharpe ratio or Jensen's alpha methodologies. Finally, a formula is derived which computes the borrowing (margin loan) rate that makes the aggressive call‐writing strategy profitable.

The 2003 changes in US tax laws provide individuals with an opportunity to apply dividend capture techniques similar to those which have been available to corporations for many years. However, corporations use dividend capture techniques to lower risk, while individuals require risk exposure to keep the possibility for capital gains. Thus, a method is developed for capturing an enhanced tax refund on the drop in stock price caused by the stock going ex‐dividend without giving up the potential for capital gain. A byproduct of this method is a straightforward means to measure risk‐adjusted returns for the covered call strategy. The aggressive call‐writing strategy described in this paper is found to offer enhanced returns without an increase in risk for those in the top individual tax brackets.

The specific level of additional risk‐adjusted returns available depends on the tax rates and interest (margin loan) rates facing the investor.

Following the 2003 tax law changes, individuals can receive returns on stocks higher than implied by the statutory tax rate on dividends by employing a dividend capture strategy which involves writing call options on dividend‐paying stocks. This paper also demonstrates that the risk exposure necessary to obtain full capital gains potential can be maintained with an aggressive strategy. This strategy inherently provides a method to judge the extent of improvement without having to rely on questionable assumptions of any specific asset‐pricing model.

The paper provides an alternative to conventional covered call‐writing strategies which reduce exposure to capital gains. Individual investors and their advisors will find a method to maintain exposure to market risk and therefore the full potential for capital gains, while receiving preferential tax treatment on dividends received. Researchers will find a method to directly compute risk‐adjusted return for covered call‐writing strategies without having to rely on assumptions made in the asset‐pricing models underlying the Sharpe ratio and Jensen's alpha.

This study investigates the ex-dividend day stock prices of the firms listed on the Dhaka Stock Exchange (DSE) where the tax rate is higher on dividends than on capital gains. The results help to explain what impact taxes have on the ex-day stock prices behavior in an emerging market.

To examine the tax effect on the ex-day stock prices behavior, this study considers after-tax dividends and computes the raw price ratio, market-adjusted price ratio, raw price drop, market-adjusted price drop. The market-adjusted ex-dividend day abnormal returns and relative trading volume are also examined to determine the direction of investor trading around the ex-day.

The main hypotheses examine whether the mean (median) differs from its theoretical value by using a t-test and nonparametric sign-rank test. The findings suggest that the drop of stock prices on the ex-day on the DSE is not due to taxes or transaction costs but to valuation assumptions made by investors in determining the equilibrium stock price.

Findings of this study will be useful for investors and traders in their valuation assumption to trade around the ex-dividend day.

Market participant’s preference of dividends, and exempted tax and its ultimate contribution to the equity value explain the ex-day stock prices behavior in the Dhaka Stock Exchange.

This study investigates whether corporations consider shareholder-level taxes when setting corporate distribution policy. I investigate the relation between the tax-rate differential on dividend and capital gains income and its effect on firms’ distribution policies. I find that firms consider shareholder-level taxes and that this association varies with the percentage of the firm owned by individual shareholders. Hence, firms increase share repurchases and decrease the percentage of total corporate payout in the form of a dividend as the tax-rate differential increases. Thus, an increased substitution effect occurs as capital gains become relatively more tax-advantaged compared to dividends. Furthermore, I find a positive association between the percentage of the firm owned by individual investors and the percentage of total corporate payout distributed as a repurchase. These findings are consistent with personal income taxes influencing managerial decisions regarding the payout of excess corporate funds.

Several studies have observed that stocks tend to drop by an amount that is less than the dividend on the ex-dividend day, the so-called ex-dividend day anomaly. However, there still remains a lack of consensus for a single explanation of this anomaly. Different from other studies, this dissertation attempts to answer the primary research question: how can investors make trading profits from the ex-dividend day anomaly and how much can they earn? With this goal, I examine the economic motivations of equity investors through four main hypotheses identified in the anomaly's literature: the tax differential hypothesis, the short-term trading hypothesis, the tick size hypothesis, and the leverage hypothesis.

While the U.S. ex-dividend anomaly is well studied, I examine a long data window (1975–2010) of Thailand data. The unique structure of the Thai stock market allows me to assess all four main hypotheses proposed in the literature simultaneously. Although I extract the sample data from two data sources, I demonstrate that the combined data are consistently sampled. I further construct three trading strategies – “daily return,” “lag one daily return,” and “weekly return” – to alleviate the potential effect of irregular data observation.

I find that the ex-dividend day anomaly exists in Thailand, is governed by the tax differential, and is driven by short-term trading activities. That is, investors trade heavily around the ex-dividend day to reap the benefits of the tax differential. I find mixed results for the predictions of the tick size hypothesis and results that are inconsistent with the predictions of the leverage hypothesis.

I conclude that, on the Stock Exchange of Thailand, juristic and foreign investors can profitably buy stocks cum-dividend and sell them ex-dividend while local investors should engage in short sale transactions. On average, investors who employ the daily return strategy have earned significant abnormal return up to 0.15% (45.66% annualized rate) and up to 0.17% (50.99% annualized rate) for the lag one daily return strategy. Investors can also make a trading profit by conducting the weekly return strategy and earn up to 0.59% (35.67% annualized rate), on average.

This study investigates the influence of corporate income tax on two corporate financial decisions — dividend and capital structure policies, particularly for Shariah compliant companies in Malaysia.

The study considered data from a sample of 529 Malaysian listed companies from four industrial sectors from 2007–2021 (6,746 company-year observations, before eliminating outliers). Panel models such as Fixed Effect and Random effect models were used. The study specifically tested the effect of corporate income tax on dividend and capital structure policies for Shariah compliant companies (3,148 observations) and controlled for industrial sectors.

(1) Firms are mostly Shariah-compliant, less liquid, less profitable and smaller in size, (2) Broadly when analysed together, tax has no impact on debt-equity ratio while it has an impact on dividend per share, (3) However, when tested separately for Shariah compliant companies, the influence of effective tax on capital structure is very evident but not for dividend and (4) influence of industrial sector on the relationship between corporate tax and capital structure and dividend policy is significant. Results indicate that Shariah firms might be raising debt to gain tax advantage. Companies in general pay dividends to avoid reputational damage.

This study assumes that leverage and dividend policy decisions are the main outcomes of the changing tax policies, while it seems that there could be other important outcomes that can be tested in future research. The study also shows the changing tax regimes of different ASEAN countries but they have not been tested to see the differences between countries. It will be indeed interesting for future researchers to focus on this aspect.

The findings contribute to the literature on tax planning of the Shariah-compliant firms, a high growth business segment in the Asian context. The study discussed potential tax-based Islamic market product development.

The purpose of this paper is to investigate the extent to which UK equity prices reflect shareholder level taxation on dividends (dividend tax capitalisation). Despite an extensive theoretical and empirical literature controversy exists.

Using a sample of UK firm year ends from 1991 to 2007 archival accounting and share price data are used to test for the presence or otherwise of dividend tax capitalisation.

The paper finds evidence of equity values reflecting shareholder level dividend taxation. In particular, a significant reduction in the valuation of retained earnings, a measure of dividend paying potential, is observed around the July 1997 abolition of the repayment of dividend tax credits to tax exempt shareholders. This suggests a link between shareholder level taxation of dividends and firms’ cost of capital.

The analysis focuses on share prices and is therefore subject to an underlying assumption of shareholders’ understanding tax and other potential relevant information.

The taxation of dividends is an important issue because of the potential for it to influence firms’ cost of capital and therefore investment decisions. Further, non-tax costs may be incurred to the extent that attempts are made to mitigate any “adverse” tax effects.

The results indicate that taxation of dividends and share prices are associated and therefore also indirectly firms’ cost of capital. This linkage has implications for investment appraisal and the allocation of capital between competing demands.

In using an asset valuation approach the limitations of alternate methods of examining shareholder level taxation of dividends are avoided, e.g. analysis of dividend drop of ratios.

The purpose of this paper is to examine whether the significant dividend tax rate reduction for individual investors in Canada in 2006 affected firms’ payout policies.

Using regression models, the authors examine the impact of the 2006 dividend tax cut on dividends and share repurchases in Canadian listed firms from 2003 to 2008. The authors also ran a multinomial logit regression to examine choices between payout policies.

Following the tax cut, firms increased their dividend payouts, with larger increases for firms in which shareholders benefited from the reduced tax rate. However, the 2006 tax cut appears to have had no negative effect on distributions through share repurchases. After the 2006 dividend tax cut, firms owned by shareholders subject to dividend taxes were more likely to use a combination of distribution mechanisms than share repurchases only, dividends only, or no payouts.

Shareholders’ tax preferences are an important factor for firms to consider when designing payout distribution policies. Following the 2006 dividend tax cut, firms increased their dividend payouts.

The findings provide tax regulators with insight into how firms react to tax reform. They suggest that firms adapt their payout policy in the face of: a noteworthy dividend tax cut (6.2 per cent); a dividend tax cut that does not encourage tax arbitrage; and a dividend tax cut that does not economically favour dividend payment over share repurchases.

The paper considers the 2006 dividend tax rate cut in Canada, which presents a number of significant features that allow capturing the effect of a tax cut on payout policies.

The purpose of this paper is to show how recent capital gains affect ex‐dividend stock pricing. Traditional models assume that investors are motivated to sell a stock before its ex‐date to avoid paying higher taxes on dividends. However, if a stock has appreciated significantly, stockholders have an offsetting incentive to delay the realization of capital gains by continuing to hold the stock in spite of the higher dividend tax rate.

This paper develops a model showing that ex‐dividend price drops should be greater in the presence of larger accrued capital gains. The model was tested by regressing ex‐day pricing measures on the relative size of the recently accrued gain, along with other control variables.

Empirical tests confirm that accrued gains reduce the magnitude of the ex‐day effect, increasing the price drop ratio (ΔP/D) and reducing ex‐day returns. Also documented was that ex‐day price drops are larger for stocks that have recently experienced positive gains, that the observed effect of recent price performance is stronger for higher‐yield stocks, and that share turnover is usually lower for stocks with greater gains.

This paper's findings suggest that the results of existing empirical investigations of ex‐day pricing should be interpreted with some caution, and that future studies should control for gains that occur prior to the ex‐date.

While the tax clientele explanation of ex‐day pricing has been investigated extensively, this is the first study to show how accrued gains and losses impact ex‐dividend price changes.

The purpose of this paper is to examine current thinking and evidence on the extent to which taxation is, or should be, an influence upon dividend policy. To this end, the paper has been divided into two parts. The first reviews the range of normative stances and the empirical evidence in respect of each stance. Discussion mainly addresses large listed companies in the US and, to a lesser extent, the UK. The second part of the paper is based on more practical issues. This focuses attention on smaller, owner‐managed companies, for which there is less empirical evidence relating to dividend policy. This analysis of smaller companies is restricted to the UK taxation system only.