NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Borja Larrain, Motohiro Yogo

NBER Working Paper No. 12847
Issued in January 2007
NBER Program(s):   AP   CF

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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This paper was revised on August 26, 2009

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Document Object Identifier (DOI): 10.3386/w12847

Published: Larrain, Borja & Yogo, Motohiro, 2008. "Does firm value move too much to be justified by subsequent changes in cash flow," Journal of Financial Economics, Elsevier, vol. 87(1), pages 200-226, January. citation courtesy of

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