Dive into Dividends: How Does the Dividend Yield and Change of Capital Income Tax Affects Dividend Anomaly: Evidence from the Finnish Market

Abstract

In this study, I study the impact of divided taxation and dividend yield on stock returns around ex-dividend date. I studied how the anomaly has changed over time and over different tax-regimes before and after ex-dividend date in the Finnish market during 1993-2016. Before the tax-reformation in 2004, the abnormal returns were positive and statistically significant before the ex-dividend date. After that time, the significance drops and the taxation has not changed that much but the changes are still visible in the results. The low yielding stocks surprisingly outperformed other yielders during the sample window −20<𝑡<20 ie. its performance around ex-dividend date was better than high-yielders’ cum-dividend performance.