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


Universidad Catolica de Chile

Motohiro Yogo


Federal Reserve Bank of Minneapolis

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

Accepted Paper Series


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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
Universidad Catolica de Chile ( email )
Ave. Vicuna Mackenna 4860, Macul
Santiago
Chile
HOME PAGE: http://www.faceapuc.cl/personal/blarrain
Motohiro Yogo (Contact Author)
Federal Reserve Bank of Minneapolis ( email )
90 Hennepin Avenue
Minneapolis, MN 55401-1804
United States
HOME PAGE: http://https://sites.google.com/site/motohiroyogo/
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