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NISM Certifications · NISM-Series-XV: Research Analyst · Corporate Actions

On the ex-dividend date of a cash dividend, what is the usual expected effect on the share price, all else being equal?

The share price is expected to adjust downward by roughly the dividend amount on the ex-dividend date. New buyers are no longer entitled to the declared dividend, so the value paid out leaves the share price.

  1. AIt adjusts downward by approximately the dividend amountCorrect
  2. BIt adjusts upward by approximately the dividend amount
  3. CIt remains unchanged because dividends are already taxed
  4. DIt is doubled to reflect the payout

Explanation

After the ex-date, a buyer is not entitled to the declared dividend, so the value of cash leaving the company is reflected as a price drop of roughly the dividend per share. The price does not rise, and tax treatment does not hold the price constant.

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