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A simple new paper in which we explain why corporate valuations relative to earnings have soared since the early 1980s, while valuations relative to corporate cash flow have remained relatively stable. The key is that companies have been able to grow earnings without increasing investment, thereby increasing the payout rate — the share of earnings paid out as free cash flow to firm owners.
The observed decline in labor’s share of corporate output, in conjunction with relatively weak corporate investment, generates a persistent rise in the ratio of corporate valuation relative to corporate earnings, from Andrew Atkeson, @Jonheathcote, and @fab_perri nber.org/papers/w34748View quoted post on X
