We compare the stock return forecasting performance of alternative payout yields. The net payout yield produces more accurate forecasts relative to alternatives, including the traditional dividend yield. This remains true even after excluding several years during the Great Depression when issuance was unusually high. The measure of cash flow used to form the yield matters economically. Long-term investors’ hedging demand for stock is considerably reduced when net payout, rather than dividends, serves as the cash-flow measure. An agent relying on an incorrect payout measure is willing to pay an economically significant “management fee” to switch to the optimal policy.

Many academic studies use fixed preannouncement event days (e.g., -20,-42, or -63) to measure takeover premiums. In this paper, we show that the use of traditional fixed windows generates premiums that are underestimated by as much as 8 percentage points. This downward bias is especially severe for transactions with long processes (e.g., target-initiated deals). We take account of this bias by hand collecting deal initiation dates and show that using these dates results in measured premiums that give contradictory conclusions to those found in existing literature. We also offer guidance for measuring premiums if hand collecting data is impractical.

Using manually compiled cost of equity (COE) estimates disclosed in takeover regulatory filings, we provide novel evidence on how investment bankers estimate discount rates. COE estimates are related to several risk proxies, such as beta and size. Other firm characteristics are unrelated to COE estimates or provide relations contradicting academic evidence. We also explore the role of incentives. For example, banks use significantly higher COEs in management buyouts, which potentially underestimates target value, making the bid more attractive for target shareholder approval.