The influence of cash flow volatility on capital structure and the use of debt of different maturities |
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| Institution: | 1. Victoria University of Wellington, School of Economics and Finance, PO Box 600, Wellington 6140, New Zealand;2. Victoria University of Wellington, School of Economics and Finance, New Zealand;1. Aarhus University, Fuglesangs Allé 4, 8210 Aarhus V, Denmark;2. Muma College of Business, BSN 3403, University of South Florida, Tampa, FL 33620, USA;1. Professor of Finance, Mihaylo College of Business and Economics, California State University, Fullerton, CA 92831, USA;2. School of Finance, Dongbei University of Finance and Economics, Dalian, Liaoning Province, 116025, China;3. Associate Professor of Finance, School of Finance, Shanghai University of Finance and Economics, Shanghai, 200433, China;4. School of Theology, Boston University, 745 Commonwealth Avenue, Boston, MA 02215, USA;1. Plymouth Graduate School of Management & Plymouth Business School, University of Plymouth, Plymouth, United Kingdom;2. College of Business & Economics, UAE University, Al Ain, United Arab Emirates;3. Champagne School of Management, Troyes, France;4. IRG, Université Paris Est, Créteil, France;1. UAE University, College of Business & Economics, United Arab Emirates;2. College of Business Administration, King Saud University, Saudi Arabia;3. Department of Finance, Audit and Accounting Champagne School of Management (Groupe ESC Troyes), France IRG, Université Paris Est Créteil, France |
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| Abstract: | 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 approximately 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. |
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