Does firm value move too much to be justified by subsequent changes in cash flow?

Borja Larrain, Motohiro Yogo

Research output: Contribution to journalArticlepeer-review

53 Scopus citations

Abstract

The appropriate measure of cash flow for valuing corporate assets is net payout, which is the sum of dividends, interest, and net repurchases of equity and debt. Variation in net payout yield, the ratio of net payout to asset value, is mostly driven by movements in expected cash flow growth, instead of movements in discount rates. Net payout yield is less persistent than dividend yield and implies much smaller variation in long-horizon discount rates. Therefore, movements in the value of corporate assets can be justified by changes in expected future cash flow.

Original languageEnglish (US)
Pages (from-to)200-226
Number of pages27
JournalJournal of Financial Economics
Volume87
Issue number1
DOIs
StatePublished - Jan 2008

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

Keywords

  • Asset valuation
  • Excess volatility
  • Payout policy
  • Valuation ratio

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