Capital Structure and the Ex-Dividend Day Return

We apply an option-pricing framework to the ex-dividend behavior of common stocks. The framework explains the observed behavior of positive returns on the ex-dividend day and predicts that ex-dividend day returns will be higher for firms with greater financial leverage. Empirical testing supports the prediction. In contrast to prior studies, we find that dividend-capture activity has no significant impact on ex-dividend behavior, and we offer an explanation based on the importance of tick intervals