Financial constraints, cash flow timing patterns, and asset prices

Weiping Hu, Kai Li and Xiao Zhang

Journal of Financial Economics, 2024, vol. 157, issue C

Abstract: We show that firms collect almost 70% of their cash flows in the second half of the fiscal year, and that firms that collect more cash by year-end earn a 6.8% higher per annum risk premium and save more cash. We rationalize these facts in a quantitative investment-based asset pricing model. Immediate cash payments negatively affect profitability, but reduce equity financing costs by increasing information transparency. Financially constrained firms optimally collect more cash at year-end when firms’ performance attracts more attention and information transparency is more valuable. Such behavior further results in greater exposure to aggregate productivity and financial shocks.

Keywords: Cash flows; Cash flow timing patterns; Asset prices; Equity financing costs (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:157:y:2024:i:c:s0304405x24000783

DOI: 10.1016/j.jfineco.2024.103855

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