Working Paper: NBER ID: w12847
Authors: Borja Larrain; Motohiro Yogo
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.
Keywords: firm value; cash flow; net payout; asset valuation
JEL Codes: G12; G32; G35
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| variation in net payout yield (G35) | expected cash flow growth (D25) |
| variation in net payout yield (G35) | discount rates (E43) |
| movements in asset value (G19) | changes in expected future cash flows (G19) |
| net payout yield (G35) | future net payout growth (G35) |
| net payout yield (G35) | asset returns (G19) |
| high net payout yields (G35) | low net payout growth (G35) |