Ex-Dividend Day Pricing in Portugal: Recent Evidence

Abstract

Our study assesses the ex-dividend stock price behavior in the Portuguese stock exchange, between 2004 and 2017. The most striking captivating characteristic of this period is the fact that, from 2012 onwards, dividends and capital gains taxes were the same for private investors. This allowed us to conduct an analysis of the impact of these tax changes on ex-dividend price formation. Using panel data regression methods, we analyzed a sample of 262 observations from 23 listed firms. For our full sample period, we find, as expected, a positive relationship between the dividend yield and ex-dividend price change, i.e., the ex-day price fall is related to the gross dividend amount. At first, when testing for a tax explanation in the formation of ex dividend prices, our results were not robust enough to support the hypothesis. Nonetheless, after splitting the sample into the period before and after the 2012 tax change and comparing both subsamples, we find evidence that points towards the presence of a tax effect. We find no evidence supporting market microstructure arguments in ex-dividend price behavior. We tested our first subsample (before the tax changes) for clientele effects, and the observed results were insignificant