Cash Flow Volatility and Debt Maturity Structure: Role of Macroeconomic Factors

Abstract

This study investigated the moderating role of macroeconomic factors in the relationship among CFV and DMS by considering a sample of 380 listed non-financial firms of Pakistan over a period from (1999-2018). Ordered probit regression and executed some standard econometric techniques such as two-way fixed effect, generalized method of moments (GMM), to explain the robustness of main findings. The study findings endeavor that role of macroeconomic factors weakens the CFV relationship with DMS. In addition, carried out a conditional analysis to analyze the effect of cash flow volatility on debt maturity structure at different percentiles (25th, 50th,75th) of macroeconomic variables. The conditional effects results indicate that when inflation, money supply and interest rate vary from low to high level, the inverse effect of cash flow volatility on debt maturity structure is determined. However, when a country experiences higher economic growth the direct effect of cash flow volatility on the debt maturity structure is determined. this research findings suggest some recommendations in the subsequent ways: Firstly, firms when facing variation in the earning level may mitigate their financial distress, cost of bankruptcy by choosing short-term maturity debts. Secondly, the role of macroeconomic factors should be considered by the financial managers in the decision-making process as it effects the firms DMS. Thirdly, non-financial firms, banks, financial institutions may lessen their risk of non-performing loans by limiting their financing when experiencing high CFV.