Earnings, Dividend Policy, and Present Value Relations: Building Blocks of Dividend Policy Invariant Cash Flows / Bruce N. Lehmann.

Format:

Book

Author/Creator:

Lehmann, Bruce N.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w3676.

NBER working paper series no. w3676

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Earnings, Dividend Policy, and Present Value Relations

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1991.

Summary:

In a Modigliani-Miller world, price equals the risk-adjusted present value of future dividends and dividend policy is irrelevant for asset pricing. This paper searches for cash flows with two characteristics: asset prices can be calculated from their present values and they are invariant with respect to dividend policy. Residual income measures with these features are identified under two assumptions: dividend policy does not alter risk premiums and income earned from investments associated with dividend policy includes capital gains and losses. These results hold for otherwise arbitrary risk premiums in the general no-arbitrage approach to the valuation of uncertain income streams.

Notes:

Print version record

April 1991.