The impact of taxes and state ownership on the market value of dividends in the Vietnamese market

This thesis aims to evaluate the impact of taxes and state ownership on the market value of dividends in the Vietnamese stock market. The market value of dividends is measured by the ex-day drop-off ratio which is the ratio of the stock price drop on the ex-dividend day to the amount of dividend. First, the thesis examines how the ex-day drop-off ratio of stocks on the Ho Chi Minh Stock Exchange (HOSE) changes following the changes in the relative difference between the tax rate on dividends and on capital gains. The thesis finds that, on average, the ex-day drop-off ratios are not responsive to the changes in dividends and capital gains tax rate. This finding is inconsistent with the tax hypothesis which predicts the tax differential treatment between dividends and capital gains to be the driving force of the ex-day stock price behaviour. On the other hand, the thesis documents evidence in support of the short-term trading hypothesis. Abnormal trading volume present around the ex-days is adversely affected by transaction costs and dividend yields but unaffected by the difference between dividends and capital gains tax rate. Secondly, the thesis examines the relationship between the value of dividends and state ownership. A positive correlation between the ex-day drop-off ratios and state ownership indicates that the market value of dividends is higher in companies with a higher level of state ownership. Finally, the thesis finds that the impact on the market value of dividends of the tax differential between dividends and capital gains is significant for companies with state ownership greater than 50 percent. For companies with state ownership less than 50 percent, the difference between dividends and capital gains tax rates does not significantly affect the market value of dividends.