Ex-dividend stock price behaviour and tax-induced clientele effect : a Canadian experience

The purpose of this paper is twofold: to examine the ex-dividend stock price behaviour and the tax-induced clientele effect in Canada. The study of the ex-dividend stock price behaviour is well documented in the U.S. The conclusive evidence is that stock price would fall on the ex-dividend day by an amount less than the dividend per share. So far, there is no such study on Canadian stocks and one of the aims of this thesis is to establish the same evidence in Canada. Attempts will also be made to test the hypothesis advanced by Elton and Gruber that ex-dividend stock price behaviour is determined by the tax structure of the economy. These attempts consist of the following investigations: (l) the difference;in ex-dividend stock price behaviour of Canadian companies on the Toronto Stock Exchange one year before and after the 1972 tax reform; (2) the difference in ex-dividend stock price behaviour of Canadian companies in Canada vis-a-vis those in the United States; and (3) the difference in ex-dividend stock price behaviour of U.S. stocks in Canada before and after the 1972 tax reform. The existence of the tax-induced clientele effect will be investigated on the basis of ex-dividend stock price behaviour in Canada as pioneered by the Elton and Gruber (1970) study.Business, Sauder School ofGraduat