Further evidence from ex-dividend days

We tested how dividend pricing is impacted by the reduction in capital gains tax rate to 20% (May 1997) and the move to trading in 6.25¢ (June 1997). Price behaviour does not support tax clienteles but is consistent with transaction costs-based explanation. Raw returns, for all groups, are within or close to weak no-arbitrage bounds and are unchanged around these events. We find that taxes may impact investor behaviour but they do not impact marginal dividend pricing.