This fourth part of dividend imputation in Australia discusses a previous study on the issue. Remarkably, this part reviews a paper by Siau, et al. (2015). Using discounted cash-flow valuation models, Siau, et al. (2015) test whether Australian stock price capitalizes imputation tax credits. Moreover, they also examine the relation between earnings yields and imputation credit yields. Their motivation to test the issues is because of the mixed evidence despite a large number of studies examining them. They argue that the value of imputation credit is easily captured if all investors are resident stockholders. However, the existence of foreign and certain exempt stockholders complicates the estimation of the value of imputation credit.

Siau, et al. (2015) argue that if the market values imputation, it will then lower the cost of capital. Moreover, the cash flow recognized by the investors is higher as a consequence of the imputation system. Based on the discounted cash-flow valuation models, it will then increase the share prices. Using 1,783 observations of S&P/ASX 300 between the fiscal year 1996/1997 – 2010/2011, Siau, et al. (2015) find imputation credit fails to lower realized return. They also find that the market might price imputation credit. They argue that there may be several reasons for the inconsistent relationship between imputation and share price and return. First, it may be related to the condition where the marginal investors in Australia are foreign investors for whom imputation credit has no value. Second, it may be related to the possibility of market inefficiency in Australia.


  • Siau, Kai‐Wei (Shaun) and Sault, Stephen and Warren, Geoffrey J., Are Imputation Credits Capitalised into Stock Prices? (March 2015). Accounting & Finance, Vol. 55, Issue 1, pp. 241-277, 2015, Available at SSRN: or

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