Valuing dividend imputation credits in Australia : an alternative approach

Ickiewicz, Joel (2006). Valuing dividend imputation credits in Australia : an alternative approach Honours Thesis, School of Business, The University of Queensland.

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Author Ickiewicz, Joel
Thesis Title Valuing dividend imputation credits in Australia : an alternative approach
School, Centre or Institute School of Business
Institution The University of Queensland
Publication date 2006
Thesis type Honours Thesis
Total pages 101
Language eng
Subjects 15 Commerce, Management, Tourism and Services
14 Economics
Formatted abstract
Dividend imputation credits have the potential to alter the portion of the return a firm must provide its equity holders. Correctly identifying what return a firm must provide its marginal equity holder is vital to a firm's capital allocation decisions and also to the valuation of the firm itself. Previous studies have attempted to value the worth of imputation tax credits to the firm through analysis of drop-offs surrounding dividend ex-dates or the trading of highly specialized securities. These studies are limited by their methodology or ability to generalize. Both techniques are unable to reach robust consensus for the effect franking credits have had on Australian equity prices and returns. This thesis directly examines past equity returns and documents what effect significant innovations in the imputation system have had on the value of imputation credits for the firms who distribute them. A comprehensive Arbitrage Pricing Theory model of equity prices is utilised to explain normal market movements surrounding significant innovations in the system. The model's residuals are attributed to value created by imputation credits as a result of those innovations. Results indicate that Australian equity markets do not factor in the value of franking credits to equity prices. This is consistent with the view the price setting investor for Australian equity markets is foreign and unable to extract value from the imputation system.

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Created: Fri, 17 Dec 2010, 14:48:19 EST by Mr Kevin Liang on behalf of The University of Queensland Library