An International Analysis of Factors Affecting Ex-Dividend Day Stock Prices

Abstract

We investigate stock price changes on the ex-dividend day in 37 countries. We hypothesize that, in addition to taxes, other market frictions should also affect ex-dividend day stock prices in world markets. Empirical results show that mean price drop ratios deviate significantly from their predicted values based on differential tax rates between dividends and capital gains, and that proxies for agency conflicts and information asymmetry also help explain these cross-country deviations. After controlling for these factors, the weighted average of investors' tax rate is reflected in the ex-dividend day price movements. the results are consistent with the idea that agency conflicts, information asymmetry and differential taxation of dividends and capital gains are all important factors affecting ex-dividend day stock prices in world markets.