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Employment, Corporate Investment, and Cash-Flow Risk

Published online by Cambridge University Press:  10 June 2019

Saad Alnahedh ,
Sanjai Bhagat  and
Iulian Obreja
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Abstract

We highlight the role of cash-flow uncertainty on corporate employment and investment. We find that a 1% increase in cash-flow uncertainty leads to a 0.62% decrease in tangible investment, a 1.39% decrease in intangible investment, and a 3.67% decrease in corporate employment growth. Our results are statistically and economically significant. We further find that these relationships are stronger during economic recessions. Our findings have significant policy implications. To wit, if policy makers would like corporations to increase their employment and investment, they should focus on policies that decrease corporate cash-flow uncertainty.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 54 , Issue 4 , August 2019 , pp. 1855 - 1898
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2019 

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Footnotes

1

We thank Anil Abbaraju for excellent research assistance with this project. We also thank the seminar participants at the University of Colorado at Boulder and the participants at the 2013 American Economic Association Conference in San Diego, the 2012 Finance Down and Under Conference in Melbourne, and the 2012 American Enterprise Institute micro-conference on investment and uncertainty for helpful comments. We are especially grateful to Nick Bloom, Steve Davis, Catherine de Fontenay, Denis Gromb, Jarrad Harford (the editor), Adriana Kugler, Kenneth Lehn, Stan Veuger, Peter Wallison, Toni Whited, and an anonymous referee for their comments and suggestions that have greatly improved the article. The U.S. Securities and Exchange Commission (SEC), as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the authors and do not necessarily reflect the views of the SEC or of the authors’ colleagues on the staff of the SEC.

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