A stakeholder approach to the valuation of corporate cash flows

Since real-world capital markets are not complete and perfect, the value of cash flow streams cannot be derived from market prices alone. Although different shareholders may prefer different investment strategies, however, they agree that corporate cash flows must not be dominated by alternative cash flows available in the market. Hence, capital markets determine a margin for valuation and the question arises, which principles of corporate planning are adequate for selecting a particular valuation within this margin. We argue that the preservation of the present value of generated cash flows over time (i.e. restricting paid out dividends to the created income) is a well-reasoned principle which is, moreover, well-established in most European corporate governance systems. The paper focuses on the implementation of this principle into standard models for corporate financial planning.