The effects of dividend taxation on short selling Public Deposited

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  • March 22, 2019
  • Thornock, Jacob R.
    • Affiliation: Kenan-Flagler Business School
  • I examine the effects of dividend taxation on the primary parties involved in a short sale: the lender of the stock and the short seller. Using a proprietary dataset of short lending fees and quantities, I find evidence that the supply of shortable shares decreases and lending fees increase around the dividend record date. Moreover, I find greater increases in lending fees and decreases in loan supply for lenders that are sensitive to dividend taxation. The loan fee increase and loan supply decrease are consistent with a tax-induced shift in the loan supply curve. In addition, I examine effects on short sellers of the incomplete price drop on the ex-date. I find a significant decrease in short volume before the ex-date followed by a significant increase after the ex-date. This finding is consistent with short sellers delaying trading to avoid the cost of an incomplete price drop. To my knowledge, this is the first paper to examine the effects of dividend taxes in the domestic short selling market.
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  • In Copyright
  • Maydew, Edward
  • Open access

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