02300cam a22002537 4500001000700000003000500007005001700012008004100029100001900070245012000089260006600209490004200275500001600317520121300333530006101546538007201607538003601679690011201715700002501827710004201852830007701894856003801971856003702009w15807NBER20161203064009.0161203s2010 mau||||fs|||| 000 0 eng d1 aKraft, Holger.10aCash Flow Multipliers and Optimal Investment Decisionsh[electronic resource] /cHolger Kraft, Eduardo S. Schwartz. aCambridge, Mass.bNational Bureau of Economic Researchc2010.1 aNBER working paper seriesvno. w15807 aMarch 2010.3 aBy postulating a simple stochastic process for the firm's cash flows in which the drift and the variance of the process depend on the investment policy of the firm, we develop a theoretical model, determine the optimal investment policy and, given this policy, calculate the ratio of the current value of the firm and the current cash flow which we call the "cash flow multiplier''. The main contribution of the paper, however, is empirical. Using a very extensive data set comprised of more than 13,000 fims over 44 years we examine the determinants of the cash flow multiplier using as explanatory variables macro and firm specific variables suggested by the theoretical model. We find strong support for the variables suggested by the model. Perhaps the most interesting aspect of the paper is the formulation of a parsimonious empirical asset pricing model, based on the fundamental discounted cash flow approach but using current macroeconomic variables and firm specific variables easily observable for its implementation. We obtain valuation equations that could potentially form part of a new valuation framework which does not require estimating future cash flows nor risk adjusted discount rates. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web. 7aG12 - Asset Pricing • Trading Volume • Bond Interest Rates2Journal of Economic Literature class.1 aSchwartz, Eduardo S.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w15807.4 uhttp://www.nber.org/papers/w1580741uhttp://dx.doi.org/10.3386/w15807