The value of imputation credits on hybrids and the likely marginal investor.

Feuerherdt, Clinton. (2003). The value of imputation credits on hybrids and the likely marginal investor. Honours Thesis, UQ Business School, The University of Queensland.

       
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Author Feuerherdt, Clinton.
Thesis Title The value of imputation credits on hybrids and the likely marginal investor.
School, Centre or Institute UQ Business School
Institution The University of Queensland
Publication date 2003
Thesis type Honours Thesis
Supervisor Prof Steven Gray
Total pages 102
Language eng
Subjects 14 Economics
Formatted abstract Hybrid securities are becoming an increasingly important component in the capital structure of Australian firms. While displaying characteristics of both debt and equity, one principal equity attribute of hybrids is their ability to pay franked dividends. How franked dividend paying hybrids are factored into cost of capital calculations is a question yet to be answered in the literature. This thesis builds upon Officer's (1994) cost of capital formula, under imputation, and specifically seeks to estimate a value for imputation credits attaching to hybrid dividends. The focus of the •study is on •reset preference shares, which accounted for over 55% of hybrid issues in 2002. The noise free environment of hybrid security prices is exploited to infer• the value of the imputation credits by examining the price drop around the ex-dividend day. Additionally, the Generalised Least Squares methodology is utilised to overcome the heteroscedasticity that confounds extant studies. The analysis reveals that imputation credits on hybrid securities are not valued by the marginal investor. These results are consistent with the theory that the marginal investor in the Australian market is foreign and that all securities will be priced according to this investor.
Keyword Convertible securities
Securities

 
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