Cash Flow News and Corporate Policies: The Role of Asymmetries
65 Pages Posted: 29 May 2018 Last revised: 9 Oct 2018
Date Written: October 3, 2018
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: Suggested Citation