How cash flow volatility affects debt financing and accounts payable

This paper investigates how volatility of cash flow from operations affects debt financing and accounts payable using a sample of Italian listed firms. Firms with different levels of cash flow were also examined. We find that firms that have more cash flow volatility have lower long-term debt to total debt, whatever the average level of their cash flow. We also show that accounts payable is positively associated with cash flow volatility, in particular for firms with a higher level of cash flow. Lastly, research findings reveal that firm leverage as measured by the total debt to assets ratio is negatively associated with cash flow volatility when firms have a lower level of cash flow, while the same relationship was not found for firms with a higher cash flow level.