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The influence of cash flow volatility on firm use of debt of different maturities or zero-debt: International evidence

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  • Keefe, Michael O’Connor
  • Nguyen, Phoebe Huyen

Abstract

The empirical international literature on the relationship between firm cash flow volatility and debt maturity and zero-debt policy provides contradictory evidence. Using a large international sample, we find that cash flow volatility is positively associated with our measure of debt maturity at less than the 1% level of significance. Relative to unconditional means of debt maturity, a one standard deviation increase in cash flow volatility implies a 2.57% decrease in the probability of firms using long-term debt, a 5.83% increase in the probability of firms using only short-term debt and an 11.8% increase in the probability of firms using zero-debt. Overall, our results support the screening and the trade-off theories that firms with high cash flow volatility are screened out of the long-term debt market.

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  • Keefe, Michael O’Connor & Nguyen, Phoebe Huyen, 2023. "The influence of cash flow volatility on firm use of debt of different maturities or zero-debt: International evidence," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 684-700.
    • Handle: RePEc:eee:reveco:v:86:y:2023:i:c:p:684-700
    DOI: 10.1016/j.iref.2023.03.035
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    More about this item

    Keywords

    Debt maturity; Zero debt; Cash flow volatility; Emerging markets; Developing economies; Advanced economies;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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