Cash Flow Volatility and Capital Structure in Asia

This paper aims to investigate the relationship between cash flow volatility and capital structure policy for firms in developing Asian economies. The relationship is then examined, with all firms separated based on their economic development, and again based on prior debt levels and operating cash flows. Higher levels of cash flow volatility are positively related to the amount of debt in the capital structure. The positive relationship exists only among firms in developing economies and firms with higher historic leverage and positive operating cash flows.