Cash flow risk and capital structure decisions

Christopher Harris and Scott Roark

Finance Research Letters, 2019, vol. 29, issue C, 393-397

Abstract: We identify a link between cash flow risk, capital structure decisions and operating cash flows. Firms with higher cash flow volatility have higher debt levels and this positive link is only for firms with the weakest financial performance as measured by operating cash flow. When firms are ranked based on operating cash flows, those in the bottom half increase their use of leverage in the face of increasing cash flow risk. For firms with operating cash flows that are in the upper half, the link between cash flow risk faced by the firm and its use of leverage is not statistically significant.

Keywords: Capital structure; Cash flow volatility; Operating cash flow (search for similar items in EconPapers)
JEL-codes: G30 G32 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:29:y:2019:i:c:p:393-397

DOI: 10.1016/j.frl.2018.09.005

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