The Influence of Cash Flow Volatility on Capital Structure and the Use of Debt of Different Maturities
49 Pages Posted: 23 Sep 2015 Last revised: 14 May 2016
Date Written: September 22, 2015
The empirical literature on the relationship between capital structure and firm cash flow volatility is inconclusive. We explore this relationship using several measures of a firm’s cash flow volatility and econometric methods that account for the non-linear relationship of proportional variables. Overall, our evidence indicates that ceteris paribus a one standard deviation increase from the mean of cash flow volatility implies an approximate 24% decrease in the long-term debt ratio, a 26% decrease in probability of holding debt with over 10 years to maturity, and a 39% increase in the probability of holding neither short nor long term debt.
Keywords: Capital structure, cash flow volatility, zero leverage, debt maturity
JEL Classification: G32
Suggested Citation: Suggested Citation