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- Title
FIXED INCOME VALUATION IN THE EQUITY MARKET: EVIDENCE FROM THE CANADIAN INCOME TRUST SECTOR.
- Authors
Glew, Ian A.
- Abstract
Investor response to changes in income trust payouts is measured through the implied cost of capital, an inverse valuation metric. Income trust securities are purchased primarily for the income stream: distributions from dividends, return of capital and interest, so adverse responses to associated payout transaction costs are considered unlikely. Valuation using DCF models is appropriate. The data support normal observations of dividend smoothing and the asymmetric treatment of payout increases relative to decreases. Event studies demonstrate, however, investors in this sector do not reward payout growth in the models tested. Instead, unit-holders demand a lower cost of capital when the trust can afford a distribution increase, similar to lower risk premiums for more stable firms in fixed income markets.
- Subjects
CANADA; FIXED incomes; TRUST companies; VALUATION; DIVIDENDS; CORPORATE finance
- Publication
Journal of Financial Management & Analysis, 2011, Vol 24, Issue 2, p39
- ISSN
0970-4205
- Publication type
Article