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The Effect of Operating Risk (Cash Flow Volatility) on Capital Structure: A Survey of the Literature

In: Proceedings of the 2022 4th International Conference on Economic Management and Cultural Industry (ICEMCI 2022)

Author

Listed:
  • Kangjin Huang

    (Renmin University of China (Suzhou Campus), Sino-French Institute)

  • Leyi Zhang

    (The University of Manchester, School of Social Sciences)

  • Yiyi Shan

    (Malvern College)

Abstract

Capital structure, a critical indicator of a company's operations, is often considered to be influenced to some extent by operational risk. Prior researchers have been divided on the subject of the latter's impact on the former. This survey encompasses theoretical and empirical papers in this field from recent decades, comparing their information cross-sectionally, including perspectives, key assumptions, definitions of variables, empirical models, selection of data, etc. A seminal theoretical paper is presented in detail. In the work, evidences suggest that, although the methodologies used and the conclusions reached by various scholars are not identical, overall, a firm's cash flow volatility is negatively related to its financial leverage. It is highly recommended that subsequent researchers conduct further research into the causal relationship between the two.

Suggested Citation

  • Kangjin Huang & Leyi Zhang & Yiyi Shan, 2023. "The Effect of Operating Risk (Cash Flow Volatility) on Capital Structure: A Survey of the Literature," Advances in Economics, Business and Management Research, in: Hrushikesh Mallick & Gaikar Vilas B. & Ong Tze San (ed.), Proceedings of the 2022 4th International Conference on Economic Management and Cultural Industry (ICEMCI 2022), pages 1428-1437, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6463-098-5_162
    DOI: 10.2991/978-94-6463-098-5_162
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