This paper proposes a total payout-ratio model to better understand the empirical linkages between corporate payout policies and market prices. We show that log market prices are cointegrated with log dividends, repurchases, and issuances, and then define their linear combination as total payout ratios. By using vector autoregressive models, we show that payout policies have important influences on market prices. We also show that the non-dividend cash flows have more significant effects on market prices than do cash dividends. Our results help to understand how payout policies can interact with market prices, and also to reconcile the debate over the conventional proposition that the method of payout is irrelevant.
Key words: Asset Pricing, Total Payout, Payout Policy, Time-Varying Expected Returns, Miller and Modigliani.