Does Firm Value Move Too Much to be Justified by Subsequent Changes in Cash Flow?

Borja Larrain () and Motohiro Yogo

No 12847, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: G12 G32 G35 (search for similar items in EconPapers)
Date: 2007-01
New Economics Papers: this item is included in nep-acc
Note: AP CF
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Citations: View citations in EconPapers (4)

Published as Larrain, Borja & Yogo, Motohiro, 2008. "Does firm value move too much to be justified by subsequent changes in cash flow," Journal of Financial Economics, Elsevier, vol. 87(1), pages 200-226, January.

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Related works:
Journal Article: Does firm value move too much to be justified by subsequent changes in cash flow (2008)
Working Paper: Does firm value move too much to be justified by subsequent changes in cash flow? (2005)
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