Ex-dividend day price and volume: the case of 2003 dividend tax cut.

(02-01) (05-04) Median 0.105 *** -0.006 (Wilcoxon p value) (0.04) (0.50) Mean -0.009 0.012 (t-stat) (-0.18) (0.37) Sample size 9,031 9,449 Notes: PDR is defined as the cum-dividend day closing price minus the ex-dividend day closing price (adjusted by the expected daily return) divided by the dividend amount. The expected daily return is estimated using the market model with estimation period [-45, -6] and [6, 45]. The market return is defined as the return of the value-weighted market portfolio including distributions. The mean has been corrected for two sources of heteroskedasticity: the security's variance and the dividend yield effect. Data are winsorized at [2.5%, 97.5%]. The sample includes taxable dividend payments (distribution codes 1222, 1232, 1242, and 1252) of common stocks (share codes 10-12) in 2001 (excluding January), 2002, 2004, and 2005. Pre-Act period is from February 1, 2001 to December 31, 2002; Post-Act period is from January 1, 2004 to December 31, 2005. Wilcoxon sign test p-values are reported for testing the median equal to one and t-statistics are reported for testing the mean equal to one. In Panel B, Wilcoxon-Mann-Whitney test two side p-values are reported for testing the difference in the medians equal to zero and t-statistics are reported for testing the difference in the means equal to zero. *, and *** indicate statistical significance at the 10%, 5%, and 1%, levels, respectively. TABLE 3 EXCESS RETURN FOR THE TEN DAYS SURROUNDING THE EX-DIVIDEND DAY

2001 2002 Day ER(%) t-stat ER(%) t-stat -5 0.041 1.41 0.080 *** 3.38 -4 0.017 0.60 0.067 *** 2.66 -3 -0.002 -0.09 0.061 ** 2.52 -2 0.016 0.59 -0.003 -0.14 -1 0.159 *** 5.67 0.038 *** 1.59 0 0.319 *** 10.77 0.283 *** 11.33 1 0.028 0.97 -0.037 -1.46 2 0.016 0.58 0.038 1.57 3 -0.062 ** -2.21 -0.046 * -1.85 4 -0.026 -0.90 0.031 1.35 5 0.003 0.13 -0.015 -0.63

2004 2005 Day ER(%) t-stat ER(%) t-stat -5 0.014 0.73 0.018 0.88 -4 0.045 ** 2.45 0.044 ** 2.50 -3 -0.025 -1.36 0.019 1.10 -2 0.055 *** 3.12 -0.01 -0.48 -1 0.052 *** 2.99 0.042 ** 2.13 0 0.108 *** 6.01 0.119 *** 6.54 1 0.010 0.56 0.047 2.76 2 0.002 0.09 0.018 1.04 3 0.043 * 1.77 0.027 1.51 4 -0.039 ** -2.20 -0.015 -0.88 5 -0.012 ** -0.68 -0.045 *** -2.77 Notes: The excess return is the return above that predicted by the market model. The market return is defined as the return of the value-weighted portfolio including distributions. The estimation period for the market model is [115, -0] and [6, 45]. Weighted least squares are used to calculate the average excess return with the inverse of the standard deviation of the estimation period return as the weight. Excess returns in the 11-day event window [-5, +5] are presented (ex-dividend day = 0). T-statistics are for testing the null hypothesis that mean excess return is zero. Pre-Act period is from February 1, 2001 to December 31, 2002; Post-Act period is from January 1, 2004 to December 31, 2005. *, **, and *** indicate statistical significance at the 10%, 5%, and 1% levels, respectively. TABLE 4 TESTS OF THE CHANGE IN DIVIDEND CLIENTELES

Pre-Act Post-Act

(1) (2) (1) (2)

Panel A: PDR Intercept 0.377 *** -0.511 *** 0.820 *** 0.124

(7.71) (-3.92) (37.39) (1.14) Yield 23.60 *** 22.312 *** 3.248 *** 4.405 ***

(6.38) (6.04) (3.06) (3.98) Risk -0.016 -0.014 **

(-0.94) (-2.39) Market cap 0.066 *** 0.046 ***

(7.92) (6.93) PostDum Interaction

term (Yield)

x (Dummy) Sample size 9,031 9,031 9,449 9,449 R2 0.0045 0.0118 0.001 0.0078

Panel B: Excess Returns (%) Intercept 0.173 *** 1.106 *** 0.098 *** 0.546 ***

(4.74) (9.61) (4.12) (6.36) Yield 19.279 *** 10.706 ** 2.579 1.441

(4.01) (2.18) (0.78) (0.43) Risk -0.006 -0.002

(-0.54) (-0.60) Market cap -0.060 *** -0.028 ***

(-8.80) (-5.61) PostDum Interaction

term (Yield)

x (Dummy) Sample size 9,031 9,031 9,449 9,449 R2 0.0018 0.0103 0.0001 0.0034

Full Sample

(3) (4)

Panel A: PDR Intercept -0.166 ** -0.352 ***

(-2.10) (-3.97) Yield 5.868 *** 22.542 ***

(5.57) (6.08) Risk -0.015 *** -0.013 **

(-2.71) (-2.41) Market cap 0.054 *** 0.054 ***

(10.49) (10.38) PostDum 0.147 *** 0.357 ***

(4.76) (6.56) Interaction -18.121 ***

term (Yield) (-4.69)

x (Dummy) Sample size 18,480 18,480 R2 0.0113 0.0125

Panel B: Excess Returns (%) Intercept 0.746 *** 0.779 ***

(10.90) (10.63) Yield 18.036 *** 13.720 ***

(5.13) (2.81) Risk -0.005 -0.004

(-1.34) (-1.15) Market cap -0.039 *** -0.039 ***

(-9.77) (-9.69) PostDum -19.108 *** -0.056

(-6.01) (-1.28) Interaction -12.825 **

term (Yield) (-2.19)

x (Dummy) Sample size 18,480 18,480 R2 0.0093 0.0094 Notes: We test the change in dividend clienteles. The dependent variable of regressions in Panel A is the PDR. Weighted least squares are utilized to correct for heteroskedasti- city with the ratio of squared dividend yield to the stock's variance as the weight. The dependent variable of regressions in Panel B is the ex-dividend day excess returns. Weighted least squares are used to calculate the average excess return with the inverse of the standard deviation of the estimation period return as the weight. Data are winsorized at [2.5%, 97.5%]. T-statistics are in parentheses under the parameter estimates. Dividend yield is calculated by dividing the dividend amount by the cum-dividend day closing price. Risk is measured by the variance of the security's return scaled by the variance of the market returns during the estimation period [-25, -0] and [6, 25]. Market cap is the natural logarithm of the market capitalization on the cum-dividend day (i.e., cum-dividend day price multiplied by the outstanding shares). Pre-Act period is from February 1, 2001 to December 31, 2002; Post-Act period is from January 1, 2004 to December 31, 2005. PostDum = 0 for pre-Act period, and 1 otherwise. *, **, and *** indicate statistical significance at the 10%, 5%, and 1 levels, respectively. TABLE 5 PDR GROUPED BY DIVIDEND YIELD Group Dividend N Median S.D.

Yield (y)

Pre-Act 1 y<=2% 4,094 0.547 *** 8.653 (a) 2 2%6% 212 0.998 1.466

Post-Act 1 y<=2% 4,749 0.712 *** 6.144 2 2%6% 140 1.157 ** 1.454 Group Mean SE

Pre-Act 1 0.648 *** 0.077 (b) 2 0.456 *** 0.039 (c) 3 0.731 *** 0.044 (c) 4 0.958 0.065