Cash Flow Volatility Research Articles

Economic policy uncertainty and dividend policy: Insight from private firms

This study examines whether economic policy uncertainty (EPU) is associated with corporate dividend policy. Using a sample of private firms, we find that EPU is negatively related to dividend payouts. Our main findings are robust to endogeneity concerns, omitted variable problems, simultaneity bias, and alternative measures of EPU. Further, we find that firms are less likely to pay dividends when EPU is higher, confirming our main results. We also find that the negative relation between EPU and dividend payouts is stronger for firms with higher leverage, operating cash flows, sales growth, return on assets, and cash flow volatility than their counterparts. In contrast, the negative relation is weaker for firms with higher retained earnings-to-total equity ratios. Our study highlights that issues such as EPU can influence the dividend payout policies of private firms.

Urban-scale power decarbonization using a modified power purchase agreements framework based on Markowitz mean-variance theory

Urban power decarbonization is essential in the fight against climate change, yet current research often neglects the financial risks faced by investors and the shifting demands of consumers in liberalized electricity markets. This study addresses these gaps by proposing a modified Markowitz Mean-Variance Portfolio (MVP) theory, integrated with the Low Emissions Analysis Platform (LEAP), and a deep learning model. On this basis, an urban energy transition framework centered on Power Purchase Agreements (PPAs) is proposed and developed. The framework is validated considering a case study in Kitakyushu, Japan, highlighting its potential in accelerating power sector decarbonization and achieving net-zero emissions by 2038. Additionally, the internal rate of return (IRR) remains stable between 14.5 % and 19.6 % across seven other cities. While the framework reduces long-term cash flow volatility, its effectiveness hinges on industrial electrification efficiency and regional energy self-sufficiency. The findings indicate that relying solely on renewable energy for low-carbon transitions is unrealistic. Furthermore, green hydrogen could emerge as a viable alternative to fossil fuels, potentially replacing batteries for long-term energy storage. Future research should explore cross-regional energy trade and establish legal frameworks for long-term energy transactions to bolster urban energy transition resilience across diverse geographic and economic contexts.

The Influence of Socially Responsible Practices on Corporate Hedging

This study examines the nexus between firm hedging strategies and corporate social responsibility (CSR). Utilizing textual analysis of 10-K filings to measure corporate hedging, we find that firms with higher levels of CSR are more inclined to engage in hedging practices and with greater intensity. This tendency is further amplified in the presence of strong corporate governance frameworks. We posit that this is primarily driven by the mitigation of cash flow volatility, the cost of equity, and the cost of debt. Our analysis encompasses various endogeneity tests, including entropy balancing and an instrumental variables approach that considers political and geographic factors. The robustness of the results is further validated through alternative CSR and hedging metrics. This study contributes to the growing body of literature on the strategic financial implications of CSR, highlighting the complementary role of CSR in corporate risk management.

Internal Information Quality and Corporate Social Responsibility Performance: An Analysis of CSR Strengths and CSR Concerns

ABSTRACT Our study investigates whether the quality of information available within firms promotes corporate social responsibility (CSR) performance. Using different measures of internal information quality, we find that internal information quality is positively associated with CSR strengths, which are discretionary in nature, and negatively associated with CSR concerns, which are compliance oriented. We find that the positive association between internal information quality and CSR strengths is stronger in settings with internal information asymmetries due to greater cash flow volatility, a larger number of employees, or a broader geographic footprint. We also find that the negative association between internal information quality and CSR concerns is stronger in compliance settings where there are internal information asymmetries linked to year-over-year increases in concerns. Our results suggest that organizational practices that improve a firm’s internal information environment will likely enhance CSR performance by promoting CSR strengths and diminishing CSR concerns. Data Sources: Data are available from the public sources cited in the text. JEL Classifications: M14; Q56; M41; D8.

The Determinants Of Earnings Persistence In The Financial Times Stock Exchange (FTSE) ASEAN Star

This study aims to identify the factors that can influence earnings persistence in companies listed on the Financial Times Stock Exchange (FTSE) Asean Star in 2021-2022, with a total sample of 30 companies, comprising 3 companies per country from Indonesia, Malaysia, Singapore, Thailand, and the Philippines. The variables included in this study to influence earnings persistence are Accrual Reliability, Cash Flow Volatility, Sales Volatility, Firm Size, and Debt Level. The results show that Accrual Reliability, Cash Flow Volatility, Sales Volatility, and Firm Size have a partial impact on Earnings Persistence, while Leverage does not affect Earnings Persistence. The simultaneous test results indicate that Accrual Reliability, Cash Flow Volatility, Sales Volatility, Company Size, and Debt Lavel together have a significant effect on Earnings Persistence.

Free Cash Flows and Corporate Buybacks: A Study of Indian Firms

The present research examined the effects of cash flow volatility on the buyback decisions of Indian firms. The sample constitutes 179 Indian companies listed on the Bombay Stock Exchange from 2012-2020. Firms have been divided into two sets, i.e., permanent and volatile cash flow firms. Across these two sets, the study determines the major factors affecting their buyback decisions. The results of ordinary least square regression suggested that when firms have fluctuating cash flows each year, they prefer to opt for repurchases than dividend payments. Further, stock undervaluation is the key determinant of repurchases decisions. Thus, firms with constant cash flows are not highly motivated for buyback decisions. Further, the study explored that larger the size of the firm, lower is the tendency to repurchase shares. Large, manufacturing and mature firms with consistent cash funds are more strongly tended towards repurchases. Correspondingly, such companies engaged in buybacks because of their low market-to-book ratios and high information asymmetry. As cash based firms become more old, their propensity to purchase equity reduces.

Green innovation and corporate default risk

We investigate the impact of green innovation on default risk for the period 2003–2020. Using 15,015 firm-year observations from 2301 unique U.S. firms and a firm-fixed effects regression model, we find that firms with higher green-innovation experience lower default risk as measured by the distance-to-default, probability of default, and CDS spreads. We find robust evidence addressing potential endogeneity in the association between green innovation and default risk by applying three different approaches: the propensity score matching approach, the instrumental variable approach, and the difference-in-differences technique. Our channel analysis results show that high green innovation reduces cashflow volatility and managerial risk-taking, which translates into lower default risk. The influence of green innovation on default risks is contingent on various firm characteristics. It is more pronounced in firms with greater institutional ownership, a younger age, and more carbon-intensive operations.

Credit risk early warning for listed companies based on ESG information: evidence from China

ABSTRACT This study investigates the credit risk early warning of environment, social, and governance (ESG) information using financial and market models. We find that the ESG rating is negatively associated with the corporate credit risk. The addition of ESG information has significantly improved the prediction accuracy of the credit risk early warning model. This result remains robust after considering ESG rating divergence and endogeneity. Further analysis shows that cash flow volatility is an important mechanism for ESG information to play a role in identifying corporate credit risk.

The equity market response to climate change litigation

We document a significant decline in defendants' stock prices after the filing of litigation cases on climate change issues in the US. Economically, we document a 0.5% decline on the filing day and a 2.7% cumulative abnormal decline in the eight days following the filing. Cross-sectional analysis shows that the negative response is more pronounced in firms with greater external financial constraints, higher cash flow volatility, and lower environmental, social, and governance ratings. The difference-in-differences analysis shows a decline in total and responsible institutional ownership and an increase in corporate reputation risk after a climate change litigation is filed.

Speculative culture and corporate greenwashing: Evidence from China

As culture plays an important role in corporate decisions, this paper examines whether and how the culture of speculation affects corporate greenwashing. Using data of China's A-share listed companies over the period of 2010–2022 and data of provincial lottery sales as a proxy for speculative culture, we find that regional speculative culture positively affects corporate greenwashing. The effect is more pronounced among state-owned firms, firms with high managerial overconfidence and weak corporate governance, and firms located in low-level marketization and poor legal environment. Further, mechanism tests show that speculative culture increases cash flow volatility, agency costs, and managerial self-interest, through which corporate greenwashing is affected. This study adds to the literature on the determinants of corporate greenwashing from a perspective of informal institutions.

Cash flow volatility and capital structure in MENA and Africa: the moderating role of fixed assets

Cash flow volatility and capital structure in MENA and Africa: the moderating role of fixed assets

The Role of Human Talent Capital in Shaping Firm Value: Evidence from Non-Financial Sector of Pakistan Stock Exchange (PSX).

Purpose- This study examines the relationship between human talent capital and firm performance, focusing on firm value, growth opportunities, and volatility. The interaction effect of firm size on this association is also explored. Study Design/methodology/approach – This quantitative study uses a fixed effects model; the study analyzes data from 290 firms over 11 years (2013-2023). Diagnostic tests are employed to ensure the robustness of the results. Findings- The findings of the study reveal a significant positive impact of human talent capital on firm value and growth opportunities. Supported by quantitative measures, larger firms show greater utilization of human talent capital. Moreover, human talent capital mitigates cash flow volatility, highlighting its role in firm risk management. Profitability, liquidity, and innovation also significantly affect firm value and growth. Research limitations/implications – The study has several limitations. Firstly, the generalizability of the findings may be constrained by the focus on a specific industry and geographic region. Secondly, the reliance on quantitative data and fixed effects model might overlook qualitative factors influencing the human talent capital phenomenon. Thirdly, external factors such as macroeconomic conditions and regulatory changes could impact the study's findings, deserving further exploration. Research Practical Implications- The study advocates for corporate governance reforms and policy interventions to prioritize human talent capital investments. Financial strategies such as maintaining liquidity and managing leverage are recommended to stabilize firm volatility. Originality/value- This research highlights human talent capital as a key determinant of firm performance, encouraging strategic investments in human talent capital and financial management practices to enhance organizational success.

The Impact of Intangible Assets on Capital Structure in Asia

Past studies find evidence that the level of intangible assets is positively related to corporate borrowing in the United States. This paper explores the relationship between intangible assets and capital structure for Asian countries. We identify a positive relationship between intangible asset investment and debt levels throughout Asia. Unlike in the United States, this positive relationship appears to be significant for non-Goodwill and Goodwill intangible assets. Further, we find that the magnitude of this relationship is significantly greater for developed Asian countries than for developing ones. We explore explanations for this difference related to firm size, firm age, cash flow volatility, and a firm’s likelihood to default on its debt.

Greening the future: How mergers and acquisitions in China tackle carbon challenges

For various reasons, carbon-intensive firms in emerging markets are constrained to pursue cross-border acquisitions. This paper examines domestic mergers and acquisitions (M&As) as a carbon-offsetting strategy among carbon-intensive firms in China. We find that high carbon-emitting firms are more likely to engage in domestic M&As. Stricter environmental regulations amplify this effect. Additionally, these firms display higher risk profiles, characterized by elevated betas, idiosyncratic risks, cashflow volatility, and accounting return volatility due to the substantial transition risks associated with pollution control expenses. These firms opt for M&A activities to mitigate these risks, acquiring low-pollution or green innovation-focused targets. M&A announcements result in higher returns performance than low-carbon risk acquirers, indicating the value-enhancing impact of decarbonizing M&As. State-owned enterprises, financially stable firms, and those with stronger corporate governance tend to engage in M&A deals to address carbon risk.

PENERAPAN KEPUTUSAN HEDGING PADA SUATU PERUSAHAAN (STUDI KASUS SUB SEKTOR TAMBANG MINERAL BATUBARA YANG TERDAFTAR DI BEI TAHUN 2019 – 2022)

This research was conducted to determine the influence of independent variables such as leverage, company size, cash flow volatility and liquidity on hedging decisions in coal mineral mining sub-sector companies listed on the Indonesia Stock Exchange (IDX) for the period 2018 - 2022. This research uses secondary data taken from the company's official website in the research. This research uses coal mineral mining sub-sector companies as a population for a period of 5 years. This research uses purposive sampling with the criteria that have been found and a total of 17 companies. The research uses the logistic regression analysis method and uses the IBM SPSS Statistics 26 application. The results of the test show that the independent variable leverage has a positive effect on hedging decisions, while the independent variables company size, cash flow volatility do not have a positive effect on hedging decisions, and the free variable liquidity does not have a negative effect on hedging decisions.

Mitigating Underinvestment through Accounting Conservatism: A Comparative Study of Family and Non-Family Firms in Taiwan

This study examines the role of accounting conservatism in mitigating underinvestment due to internal cash flow volatility in Taiwan-listed and OTC companies from 2013 to 2022, comparing family and non-family firms. Utilizing regression analysis, we assess how accounting conservatism influences investment decisions under varying conditions of cash flow stability. Our findings reveal that accounting conservatism significantly alleviates underinvestment across all sampled firms, particularly in family firms where its impact becomes pronounced under high cash flow volatility conditions. In contrast, conservatism does not significantly affect investment decisions in stable cash flow scenarios. Additionally, the study finds that accounting conservatism can reduce capital costs under high cash flow volatility, thereby promoting investment. These insights provide a new understanding of the function of accounting conservatism across different firm types and offer practical guidance for financial decision-making.

Pengaruh Cash Flow Volatility, Firm Size, Foreign Debt dan Exchange Rate terhadap Hedging (Studi pada Perusahaan Sektor Energi Tahun 2018-2022)

The energy sector has a sharp increase in the value of imports resulting in a trade deficit that causes losses for the country as the rupiah depreciates against the exchange rate. This makes the energy sector vulnerable to exchange rate risk. Any hedging instruments such as swaps, options, forwards & options and natural hedging are generally used by companies to protect foreign exchange exposures. This study aims to examine the effect of Cash Flow Volatility (CFV), Firm Size (SIZE), Foreign Debt (FD) and Exchange Rate (ER) on the use of hedging using various instruments used by companies. By using purposive sampling, 35 energy sector companies in 2018-2022 samples were chosen for the study, and data were gathered from annual repots available on the Indonesia Stock Exchange website. The analysis employed aims to examine the impact of independent variables on the dependent in this study is logistic regression analysis. The results of this study prove that cash flow volatility, firm size and foreign debt have a positive and significant effect on hedging. While the exchange rate has no effect on hedging. The coefficient value of determination in which the variation of the dependent variable can be explained eh the variability of independent variables by 17 percent.

Methodological aspects of ensuring the smooth functioning of the digital ruble platform

Subject. The article addresses the smooth functioning of the digital ruble platform (SFDRP). Objectives. The purpose is to disclose methodological aspects of ensuring the SFDRP, considering the practices of ensuring the smooth functioning of payment systems (SFPS). Methods. The study provides a comparative analysis of characteristics of the digital ruble platform and of payment systems. It is determined that the activity of both is based on smooth functioning of individual independent actors, thus, the practices of ensuring SFPS can be applied to ensure SFDRP. Based on GOST R ISO 31000-2019 "Risk Management. Principles and Guidelines" and GOST R ISO 22301-2014 "Business Continuity Management Systems", I offer a methodological approach to ensuring SFDRP. Results. The study discloses unified SFDRP support structure and the risk and continuity management processes. Risk management is aimed at reducing the expected severity of consequences of events that may occur. At the same time, continuity management involves influencing the events that have already occurred. Conclusions. It is necessary to consider the fact of interaction between the digital ruble platform and the Bank of Russia Payment System, which implements the practices of ensuring SFPS. Efficiency of the organization of SFPS of the Bank of Russia will have a direct impact on the ability to ensure SFDRP, and vice versa. Supporting the SFDRP is especially important from the perspective of regulating the volatility of cash flows to maintain the financial stability of the economy.

Interaction impact of cash flow volatility and fixed assets on debt maturity structure in MENA and African countries

Interaction impact of cash flow volatility and fixed assets on debt maturity structure in MENA and African countries

Being famous matters: Evidence from cash flow volatility

Corporate reputation is a paramount driver of value creation and competitive advantage in the 21st century. Motivated by the importance of cash flows and the under-researched nature of their volatility in the corporate finance literature, we investigate the impact of corporate reputation on cash flow volatility. We developed unique hand-collected data from the Fortune world's most admired companies for a sample of U.S. companies from 2014 through 2020. The findings show that there is a negative relationship between corporate reputation and cash flow volatility. Our additional analyses demonstrate that the negative relationship between corporation reputation and cash flow volatility is stronger for firms with a higher company beta, higher earnings, and lower short-term liquidity. Our findings imply that improving corporate reputation can decrease the risk levels associated with operating performance.