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 the correlation between these shocks. We provide granular estimates of parameters for Compustat firms using a new filter uses only data theoretical restrictions canonical model. As predicted by theory, we find estimated are strongly related liquidity financing choices, with higher implement riskier policies, sign this determines sensitivity cash. Authors have furnished an Internet Appendix, which is available Oxford University Press Web site next link final published paper online.