New publication for Prof. Morellec in the Review of Financial Studies
© 2021 EPFL
The paper “Understanding Cash Flow Risk”, coauthored with Sebastian Gryglewicz, Loriano Mancini, Enrique Schroth, and Philip Valta, has been accepted for publication in the Review of Financial Studies.
Understanding Cash Flow Risk
Abstract:
Theory has recently shown that corporate policies should depend on firms' exposure to short- and long-lived cash flow shocks and the correlation between these shocks. We provide granular estimates of these parameters for Compustat firms using a new filter that uses only cash flow data and the theoretical restrictions of a canonical cash flow model. As predicted by theory, we find that the estimated parameters are strongly related to corporate liquidity and financing choices, that firms with a higher estimated correlation between shocks implement riskier policies, and that the sign of this correlation determines the cash flow sensitivity of cash.