PayoutYield

[SeongDeokKo]

Hello,

I was checking the PayoutYield.do file and noticed the following code:

xtset permno time_avail_m
gen PayoutYield = (dvc + prstkc + pstkrv)/l6.mve_c // page 882
replace PayoutYield = . if PayoutYield <= 0 // critical

As written, this adds the level of pstkrv. But in the paper, payout is described as including “any reduction” in the value of preferred stock outstanding (Compustat item #56), which seems to suggest using the decrease in pstkrv rather than its level.

So I was wondering whether something like the following might be closer to the original definition:

xtset permno time_avail_m
gen d_pstkrv = L.pstkrv - pstkrv
replace d_pstkrv = 0 if missing(d_pstkrv) | d_pstkrv < 0

gen PayoutYield = (dvc + prstkc + d_pstkrv) / l6.mve_c

My understanding is that this would be closer to the paper’s cash-flow-based payout yield measure.

Please let me know if I am missing something.

I think this is also consistent with the following image from Daniel et al (2020)