Working paper
Firm (Re)valuation and Payouts
SSRN
05/19/2024
DOI: 10.2139/ssrn.4733571
Abstract
A firm’s revaluation of assets does not change its cash flow but can alter its leverage. Chen and Lambrecht (2021) show that a “cash cow” firm with a target net debt ratio can reduce payouts to shareholders after positive revaluation of its assets, which seems counterintuitive. We use the ratio of fundamental value as per the residual income model to market value of equity as a proxy for firm revaluation. We find that for firms with a negative net debt ratio the probability of share repurchases (equity issuances) decreases (increases) in the extreme cases of positive firm revaluation. We find a similar result for a mature firm with low asset growth. Finally, our results are robust in terms of the number of actual shares repurchased and the amount of equity raised as a measure of payout.
Details
- Title: Subtitle
- Firm (Re)valuation and Payouts
- Creators
- Chintal DesaiAnand M. Vijh
- Resource Type
- Working paper
- DOI
- 10.2139/ssrn.4733571
- Publisher
- SSRN
- Number of pages
- 38 pages
- Language
- English
- Date posted
- 05/19/2024
- Academic Unit
- Finance
- Record Identifier
- 9984649151102771
Metrics
10 Record Views