Cash Flow News and Corporate Policies: The Role of Asymmetries

65 Pages Posted: 29 May 2018 Last revised: 9 Oct 2018

See all articles by John C. Easterwood

John C. Easterwood

Virginia Polytechnic Institute & State University - Pamplin College of Business

Bradley S. Paye

Virginia Polytechnic Institute & State University - Department of Finance, Insurance, and Business Law

Yutong Xie

Virginia Polytechnic Institute & State University - Department of Finance, Insurance, and Business Law

Date Written: October 3, 2018

Abstract

This paper examines how corporate financial policies depend on the properties of future cash flows. In contrast to prior literature, we investigate the role of asymmetries in the distribution of cash flows. We document the relevance of such asymmetries for firms' payout, liquidity, and capital structure policies. Policies are more sensitive to downside volatility and the directional effect of upside variation is often opposite that of downside. Controlling for cash flow volatility, policies significantly relate to measures of skewness. Firms adopt more conservative policies (lower propensity to pay, more cash, less leverage) when cash flow news is more negatively skewed.

Keywords: Corporate policies, cash flow news, asymmetries, volatility, skewness, leverage, cash holdings, payout, dividends, repurchases

JEL Classification: G32, G35

Suggested Citation

Easterwood, John C. and Paye, Bradley S. and Xie, Yutong, Cash Flow News and Corporate Policies: The Role of Asymmetries (October 3, 2018). Available at SSRN: https://ssrn.com/abstract=3180196 or http://dx.doi.org/10.2139/ssrn.3180196

John C. Easterwood

Virginia Polytechnic Institute & State University - Pamplin College of Business ( email )

Dept. of Finance
Blacksburg, VA 24061
United States
540-231-5904 (Phone)
540-231-4487 (Fax)

Bradley S. Paye (Contact Author)

Virginia Polytechnic Institute & State University - Department of Finance, Insurance, and Business Law ( email )

1016 Pamplin Hall (0221)
Blacksburg, VA 24060-0221
United States

Yutong Xie

Virginia Polytechnic Institute & State University - Department of Finance, Insurance, and Business Law ( email )

1016 Pamplin Hall (0221)
Blacksburg, VA 24060-0221
United States

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