The impact of nominal stock price on ex-dividend price responses

The impact of nominal stock price on ex-dividend price responses In this paper, we examine whether nominal stock price can help to explain the ex-dividend day anomaly where stock prices drop by less than the dividend amount on the ex-dividend date. We find that stocks with lower nominal prices have ex-dividend day price drops that are more consistent with theoretical predictions based on an efficient market. After controlling for factors that have been previously documented to influence ex-dividend day stock price behavior, price-drop-to-dividend ratios are closer to one for lower priced stocks. To further explore this phenomenon, we examine the change in the price-drop-to-dividend ratio around stock splits. Firms that split their shares have a larger price-drop-to-dividend ratio after the split, and companies that reverse split their shares have a smaller price-drop-to-dividend ratio after the split. Our evidence indicates that ex-dividend day stock price behavior is influenced by the nominal price of a share and that this relation could also influence the decision to split a firm’s shares. Review of Quantitative Finance and Accounting Springer Journals

The impact of nominal stock price on ex-dividend price responses

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Springer US
Copyright © 2016 by Springer Science+Business Media New York
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
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