Impact of Cash Flow Volatility on Capital Structure and Debt of Different Maturities

Abstract

The firm's capital structure is the most crucial decision to its operating and investment activities and it has been studied at both the academic and corporate levels. The purpose of this study is to investigate how different Pakistani listed companies' cash flow volatility may have an impact on their capital structure and the maturity of their debt. The research covers the years 2013 through 2022, and includes data from a total of 80 non-financial companies. The fact that multiple measures of capital structure and cash flow volatility have been used makes this study stand out as being particularly novel. The findings of the research indicate that capital structure and cash flow volatility have a significant and negative relationship with one another. This indicates that a one standard deviation increase in cash flow volatility will lead to a decrease of 0.24 in leverage. Our model accurately predicted, to a significant and negative connection between debt maturity and the volatility of cash flow. That means a decrease in debt maturity of 0.82 percentage points for every standard deviation in cash flow volatility. The results of this model suggest that when dealing with high levels of cash flow volatility, businesses should utilize debt with a shorter maturity. For the purposes of analysis, the OLS and GLM Logit link functions on SPSS have been utilized over the data.