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Dividend tax changes and ex-dividend behaviour: the case of South Africa

In April 2012, South Africa changed its tax system on dividends. South Africa switched from using Secondary Tax on Companies (STC) to Dividend Withholding Tax (DWT) in an effort to align with the international standards and eliminate the perception of a higher tax rate. This paper attempts to establ...

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Main Author: Chinhema, Michelle
Other Authors: De Jager, Phillip
Format: Thesis
Language:English
Published: Department of Finance and Tax 2016
Subjects:
Financial Management
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access_status_str Open Access
author Chinhema, Michelle
author2 De Jager, Phillip
author_browse Chinhema, Michelle
De Jager, Phillip
author_facet De Jager, Phillip
Chinhema, Michelle
author_sort Chinhema, Michelle
collection Thesis
description In April 2012, South Africa changed its tax system on dividends. South Africa switched from using Secondary Tax on Companies (STC) to Dividend Withholding Tax (DWT) in an effort to align with the international standards and eliminate the perception of a higher tax rate. This paper attempts to establish the role of taxes in determining the ex-dividend day share price movements by comparing the pre-tax change and post-tax change in price drop ratio (PDR). In this study, I compare the mean and median PDR before and after the April 2012 Act using a t-test and Wilcoxon Mann Whitney test respectively. Furthermore, this study employs a fixed effects regression model to analyse the PDR change on the ex-dividend day before and after the April 2012 Act. The advantage of using a fixed effects model is that it controls for omitted time-invariant predictors so that the model is not biased because of omitted characteristics. I find a significant difference in the mean and median PDR before and after the tax change. Furthermore, I find that ex-dividend prices vary systematically with taxes as predicted by Elton & Gruber (1970:68) hence supporting the tax-based explanation for ex-dividend day prices. This research is particularly interesting because this is the first tax clientele study in South Africa and the 2012 Act provides a natural experiment where the tax effect can be isolated more effectively compared with other studies that have been done before. Furthermore, this research spans over a narrow time frame thereby reducing the effect of other factors that may also drive ex-dividend day prices.
format Thesis
id oai:open.uct.ac.za:11427/17587
institution University of Cape Town (South Africa)
language eng
last_indexed 2026-06-10T12:33:19.547Z
license_str Not specified — see source repository
provenance_str_mv Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository
publishDate 2016
publishDateRange 2016
publishDateSort 2016
publisher Department of Finance and Tax
publisherStr Department of Finance and Tax
record_format dspace
source_str UCTD — University of Cape Town Open Access Repository
spelling oai:open.uct.ac.za:11427/17587 Dividend tax changes and ex-dividend behaviour: the case of South Africa Chinhema, Michelle De Jager, Phillip Financial Management In April 2012, South Africa changed its tax system on dividends. South Africa switched from using Secondary Tax on Companies (STC) to Dividend Withholding Tax (DWT) in an effort to align with the international standards and eliminate the perception of a higher tax rate. This paper attempts to establish the role of taxes in determining the ex-dividend day share price movements by comparing the pre-tax change and post-tax change in price drop ratio (PDR). In this study, I compare the mean and median PDR before and after the April 2012 Act using a t-test and Wilcoxon Mann Whitney test respectively. Furthermore, this study employs a fixed effects regression model to analyse the PDR change on the ex-dividend day before and after the April 2012 Act. The advantage of using a fixed effects model is that it controls for omitted time-invariant predictors so that the model is not biased because of omitted characteristics. I find a significant difference in the mean and median PDR before and after the tax change. Furthermore, I find that ex-dividend prices vary systematically with taxes as predicted by Elton & Gruber (1970:68) hence supporting the tax-based explanation for ex-dividend day prices. This research is particularly interesting because this is the first tax clientele study in South Africa and the 2012 Act provides a natural experiment where the tax effect can be isolated more effectively compared with other studies that have been done before. Furthermore, this research spans over a narrow time frame thereby reducing the effect of other factors that may also drive ex-dividend day prices. 2016-03-09T08:55:50Z 2016-03-09T08:55:50Z 2015 Master Thesis Masters MCom http://hdl.handle.net/11427/17587 eng application/pdf Department of Finance and Tax Faculty of Commerce University of Cape Town
spellingShingle Financial Management
Chinhema, Michelle
Dividend tax changes and ex-dividend behaviour: the case of South Africa
thesis_degree_str Master's
title Dividend tax changes and ex-dividend behaviour: the case of South Africa
title_full Dividend tax changes and ex-dividend behaviour: the case of South Africa
title_fullStr Dividend tax changes and ex-dividend behaviour: the case of South Africa
title_full_unstemmed Dividend tax changes and ex-dividend behaviour: the case of South Africa
title_short Dividend tax changes and ex-dividend behaviour: the case of South Africa
title_sort dividend tax changes and ex dividend behaviour the case of south africa
topic Financial Management
url http://hdl.handle.net/11427/17587
work_keys_str_mv AT chinhemamichelle dividendtaxchangesandexdividendbehaviourthecaseofsouthafrica

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