The Different Dividend Signaling Effect under Tax Deduction around Ex-Right Day: Evidence from Taiwan Stock Exchange

Abstract

Dividend tax policy is one of the important tools of government taxation. Observing the dividend tax policy and the behavior of stock prices around ex-rights will not only shed light on investment strategies, but also give us a clearer understanding of the microstructure of the capital market. Taiwan went through dividend tax policy and National Health Insurance (NHI) supplementary premium changes from 2014 to 2016. Therefore, this paper adopts the event study method to conduct empirical research on this major event period. The research conclusion points out: (1) During the research period, the company studied had a positive cumulative abnormal return before and on the ex-right day, and there was a negative cumulative abnormal return after the ex-right day. (2) When the tax reduction effect is more favorable to investors, there will be only a positive relationship with positive abnormal returns. (3) There is no statistical significance between the dividend tax reform policy and the negative abnormal return after ex-rights. The empirical results of this paper can help to better understand the pricing process of stocks by market microstructure systems such as dividend tax policies and help build a more stable stock market transaction structure. On the other hand, investors and companies can also gain their own investment or dividend policy inspiration from this research.