Magni, Carlo Alberto and Vélez-Pareja, Ignacio (2009): Potential dividends versus actual cash flows in firm valuation. Forthcoming in: ICFAI Journal of Applied Finance
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Practitioners and some academics use potential dividends rather than actual payments to shareholders for valuing a firm’s equity. We underline the differences between the two methods and present some arguments supporting the thesis that firm valuation with potential dividends overstate the actual value of the firm’s equity. In particular, consistently with DeAngelo and DeAngelo (2006, 2007), we underline that cash flows create value for shareholders only if they are withdrawn from the firm, and that the use of potential dividends may lead to contradictions.
This paper is a modified version of the theoretical part (sections 1-3) of Velez-Pareja, I., and Magni, C.A. (2008). Potential Dividends and Actual Cash Flows. Theoretical and Empirical Reasons for Using ‘Actual’ and Dismissing ‘Potential’, Or: How not to Pull Potential Rabbits Out of Actual Hats.
|Item Type:||MPRA Paper|
|Original Title:||Potential dividends versus actual cash flows in firm valuation|
|Keywords:||Cash flows, cash flow to equity, liquid assets, potential dividends, firm valuation, equity value, Modigliani and Miller|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
M - Business Administration and Business Economics; Marketing; Accounting > M4 - Accounting and Auditing > M41 - Accounting
G - Financial Economics > G3 - Corporate Finance and Governance > G31 - Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
M - Business Administration and Business Economics; Marketing; Accounting > M4 - Accounting and Auditing > M40 - General
G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General
M - Business Administration and Business Economics; Marketing; Accounting > M2 - Business Economics > M21 - Business Economics
|Depositing User:||Carlo Alberto Magni|
|Date Deposited:||08. Apr 2009 03:22|
|Last Modified:||18. Feb 2013 04:19|
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