Capital Structure and the Ex-Dividend Day Return

  1. Dan W. French1,*,
  2. Paula L. Varson2,
  3. Kenneth P. Moon3

Article first published online: 19 JUL 2005

DOI: 10.1111/j.1540-6288.2005.00106.x

Issue

Financial Review

Financial Review

Volume 40, Issue 3, pages 361–379, August 2005

Additional Information

How to Cite

French, D. W., Varson, P. L. and Moon, K. P. (2005), Capital Structure and the Ex-Dividend Day Return. Financial Review, 40: 361–379. doi: 10.1111/j.1540-6288.2005.00106.x

Author Information

  1. 1

    University of Missouri—Columbia

  2. 2

    St. Mary's University

  3. 3

    University of Northern Colorado

* * Corresponding author: Department of Finance, University of Missouri, Columbia, MO 65211; Phone: (573) 882-4300; Fax: (573) 884-6296; E-mail: FrenchDan@missouri.edu

Publication History

  1. Issue published online: 19 JUL 2005
  2. Article first published online: 19 JUL 2005

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Keywords:

  • option pricing;
  • capital structure;
  • financial leverage;
  • dividends;
  • ex-dividend return;
  • dividend capture
  • G12

Abstract

We apply an option-pricing framework to the ex-dividend behavior of common stocks. The framework explains the observed behavior of positive returns on the ex-dividend day and predicts that ex-dividend day returns will be higher for firms with greater financial leverage. Empirical testing supports the prediction. In contrast to prior studies, we find that dividend-capture activity has no significant impact on ex-dividend behavior, and we offer an explanation based on the importance of tick intervals.

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