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

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Borja Larrain
Motohiro Yogo

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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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12847.

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Date of creation: Jan 2007
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Handle: RePEc:nbr:nberwo:12847

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Find related papers by JEL classification:
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hanno Lustig, 2005. "The Returns on Human Capital: Good News on Wall Street is Bad News on Main Street (joint with Stijn Van Nieuwerburgh)," UCLA Economics Online Papers 352, UCLA Department of Economics. [Downloadable!]
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