Determinants of Ex-Dividend Date Price Behavior: Evidence From Taiwan

Abstract

Corporate payout policy has been widely examined from the perspectives of taxation, agency conflicts, and information asymmetry. However, empirical evidence on ex-dividend date price behavior remains concentrated in developed markets, such as the United States, Finland, and Australia, where institutional investors and arbitrage activities are expected to reduce temporary mispricing efficiently. However, empirical verification of these mechanisms in emerging markets remains limited, particularly in markets with extensive retail participation and heterogeneous investor tax treatment. This study exploits the institutional environment of the Taiwan Stock Exchange, which is characterized by substantial retail trading, a dividend imputation tax system, and considerable variation in ownership structure, to examine these mechanisms while incorporating governance related ownership factors. Using 5808 firm-year observations from 2013 to 2022, the results show significant price appreciation and higher trading activity before the ex-dividend date followed by incomplete reversal afterward, particularly among firms with high dividend yields and high payout ratios. Cash dividend yield, rather than the payout ratio, is the primary determinant of holding period abnormal returns and gross reversal, whereas return volatility, turnover, and institutional ownership further influence these dynamics. The findings show that governance related ownership characteristics significantly affect ex-dividend price behavior.