IDEAS home Printed from https://ideas.repec.org/a/taf/applec/v58y2026i7p1294-1306.html

The role of cash flow volatility in capital structure dynamics

Author

Listed:
  • Shengke Dong
  • Yuexiang Jiang

Abstract

Understanding the variation in leverage is important in corporate finance, but what we know remains limited. This study identifies cash flow volatility (CFV) as a key driver of the variation. Empirical results show a cointegration relationship at an annual level, and a leading role in cross-sectional regression. The conclusion remains robust after considering potential endogeneity issues. Heterogeneity analyses show that the degree of the positive impact of CFV on leverage variation is affected by factors such as company size and tax policies. Importantly, a new perspective for understanding leverage variation is proposed and examined, which belongs to statistical estimation issues rather than economic forces. This mechanism contributes to developing the trade-off model for explaining leverage variation, and showing the cause of leverage variation. Moreover, this study further finds that firms with higher CFV show higher leverage adjustment speed, which is consistent with the proposed mechanism.

Suggested Citation

  • Shengke Dong & Yuexiang Jiang, 2026. "The role of cash flow volatility in capital structure dynamics," Applied Economics, Taylor & Francis Journals, vol. 58(7), pages 1294-1306, February.
    • Handle: RePEc:taf:applec:v:58:y:2026:i:7:p:1294-1306
    DOI: 10.1080/00036846.2025.2465841
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00036846.2025.2465841
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00036846.2025.2465841?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:58:y:2026:i:7:p:1294-1306. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.