Are imputation credits capitalised into stock prices?


  • The authors are grateful for comments from Paul Brunker, Jozef Drienko, Doug Foster, Jason Hall, Raymond Liu, Phong Ngo, Shuping Shi and Garry Twite; as well as participants at the J.P. Morgan Quant Conference in July 2012. We would also like to thank the editor and an anonymous referee for their helpful suggestions.


We investigate whether imputation tax credits are capitalised into Australian stock prices by utilising discounted cash-flow valuation models and examining the relation between earnings yields and imputation credit yields. While imputation credits are valuable to many investors, the evidence that they are reflected in share prices is at best mixed and largely unconvincing. Our results reveal that imputation credits fail to lower realised returns casting doubts over whether imputation credits are priced from the perspective of longer-term buy-and-hold investors. If so, such investors can expect to fully benefit from their imputation credits, and imputation effects may not impact on the cost of capital.