Abstract

http://ssrn.com/abstract=887520
 
 

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Does Firm Value Move Too Much to Be Justified By Subsequent Changes in Cash Flow?


Borja Larrain


Pontificia Universidad Catolica de Chile

Motohiro Yogo


Princeton University - Department of Economics; National Bureau of Economic Research

June 21, 2007

Journal of Financial Economics (JFE), Vol. 87, No. 1, 2008

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.

Number of Pages in PDF File: 55

Keywords: Asset valuation, Excess volatility, Payout policy, Valuation ratio

JEL Classification: G12, G32, G35


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Date posted: March 4, 2006 ; Last revised: June 17, 2009

Suggested Citation

Larrain, Borja and Yogo, Motohiro, Does Firm Value Move Too Much to Be Justified By Subsequent Changes in Cash Flow? (June 21, 2007). Journal of Financial Economics (JFE), Vol. 87, No. 1, 2008. Available at SSRN: http://ssrn.com/abstract=887520

Contact Information

Borja Larrain
Pontificia Universidad Catolica de Chile ( email )
Ave. Vicuna Mackenna 4860, Macul
Santiago
Chile
HOME PAGE: http://economiayadministracion.uc.cl/personal/blarrain/
Motohiro Yogo (Contact Author)
Princeton University - Department of Economics ( email )
26 Prospect Ave
Princeton, NJ 08540-5296
United States
HOME PAGE: http://sites.google.com/site/motohiroyogo/

National Bureau of Economic Research
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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