The purpose of this paper is to explore whether share ownership structure plays a role in determining the ex-day pricing of dividends. If share ownership structure, specifically the proportion of the firm’s stock held by individuals vs institutions, has an effect on the ex-dividend day stock price behavior, the ex-day premium is expected to be different for firms with different ownership structures.
To investigate whether the ex-day pricing of dividends is affected by the proportion of the firm’s stock held by individuals vs institutions, the author look into the ex-day premium. The ex-day premium is calculated by dividing the difference between the closing price on the cum-dividend day and the closing price on the ex-dividend day by the amount of the dividend.
Consistent with both the tax-based theory and the dynamic trading clientele theory, the author find that the ex-day premium decreases with the level of individual ownership. Consistent with the short-term trading theory, the author also find that the ex-day premium increases with the degree of investor heterogeneity, defined as the product of the proportion of the firm’s stock held by individual investors and the proportion held by institutional investors.
The author believe that this study contributes to the literature by providing useful evidence that share ownership structure affects the ex-day pricing of dividends, and thus this study will be of interest to the readers of managerial finance.
The author would like to thank Don Johnson (Editor), two anonymous reviewers, Duane Stock, Louis Ederington, Scott Linn, Bryan Stanhouse, Jesus Salas, Veljko Fotak, Vikas Raman, and Kate Holland, along with participants at the 2014 Financial Management Association (FMA) Annual Meeting, the 2015 Midwest Finance Association (MFA) Annual Meeting, and the 2015 Financial Management Association (FMA) Asian Conference. Any errors are of the author’s own.
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