Do Cash Distributions Justify Share Prices?

47 Pages Posted: 26 Mar 2004 Last revised: 27 Jan 2013

See all articles by Claudio F. Loderer

Claudio F. Loderer

University of Berne - Institute for Financial Management; European Corporate Governance Institute (ECGI)

Lukas Roth

University of Alberta - Department of Finance and Statistical Analysis; European Corporate Governance Institute (ECGI)

Date Written: August 20, 2008

Abstract

We ask whether corporations pay out the cash that shareholders anticipate and find consistent evidence. We study the firms traded on the NYSE, the AMEX, and the Nasdaq in 1926 to 2004. Over 30-year investment horizons, corporate cash distributions are commensurate with initial stock prices, assuming the contemporaneous risk-free rates and the risk premiums assessed in the literature. Perhaps more important, riskier stocks pay out more cash during the subsequent years, although with greater volatility. Moreover, terminal stock prices decline in importance as the investment horizon grows longer. Relative to their prices, however, very large firms appear to pay too much cash, and tiny firms too little.

Keywords: Cash distributions, dividends, equity risk premium

JEL Classification: G12, G14, G35

Suggested Citation

Loderer, Claudio F. and Roth, Lukas, Do Cash Distributions Justify Share Prices? (August 20, 2008). EFA 2006 Zurich Meetings Paper, Available at SSRN: https://ssrn.com/abstract=922474 or http://dx.doi.org/10.2139/ssrn.922474

Claudio F. Loderer

University of Berne - Institute for Financial Management ( email )

Engehaldenstrasse 4
Bern, CH-3012
Switzerland
+41 31 631 37 75 (Phone)
+41 31 631 84 21 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Lukas Roth (Contact Author)

University of Alberta - Department of Finance and Statistical Analysis ( email )

2-32E Business Building
Edmonton, Alberta T6G 2R6
Canada
780-492-4431 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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