Does Firm Value Move Too Much to be Justified by Subsequent Changes in Cash Flow? / Borja Larrain, Motohiro Yogo.

Format:

Book

Author/Creator:

Larrain, Borja.

Contributor:

National Bureau of Economic Research.

Yogo, Motohiro.

Series:

Working Paper Series (National Bureau of Economic Research) no. w12847.

NBER working paper series no. w12847

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2007.

Summary:

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.

Notes:

Print version record

January 2007.