Unlocking the Value Premium: How Low-Productivity Firms Yield High Cash Flows
The study shows that value firms, which have low productivity but will eventually generate high cash flows, are rewarded for bearing sensitivity to equity premium movements. Capital adjustment costs play a crucial role in preventing heavy disinvestment by value firms, leading to higher cash flows today and greater cash-flow growth in the future. Empirical evidence confirms that value firms indeed have higher cash-flow growth, supporting the study's predictions.