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The influence of cash flow volatility on capital structure and the use of debt of different maturities

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  • Keefe, Michael O'Connor
  • Yaghoubi, Mona

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 10years to maturity, and a 39% increase in the probability of holding neither short nor long term debt.

Suggested Citation

  • Keefe, Michael O'Connor & Yaghoubi, Mona, 2016. "The influence of cash flow volatility on capital structure and the use of debt of different maturities," Journal of Corporate Finance, Elsevier, vol. 38(C), pages 18-36.
    • Handle: RePEc:eee:corfin:v:38:y:2016:i:c:p:18-36
    DOI: 10.1016/j.jcorpfin.2016.03.001
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