Employment, Corporate Investment and Cash Flow Uncertainty

Abstract

In this paper we make two contributions. First, we focus on the role of cash flow uncertainty on corporate employment and corporate investment policy and develop two cash flow risk measures. Our second major contribution is our consideration of both tangible and intangible corporate investments. We find that both our cash flow risk measures are significantly negatively correlated with corporate employment and corporate investments in tangible assets. Second, both these risk measures are also significantly negatively correlated with corporate investments in intangible assets. Furthermore, we document that both our risk measures have had a more negative impact on corporate employment and corporate investments in both tangible assets and intangible assets during the current economic recession of 2008-2009. These 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. ∗We would like to thank Anil Abbaraju for excellent research assistance with this project. All errors are ours.

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Cite this paper

@inproceedings{Bhagat2011EmploymentCI, title={Employment, Corporate Investment and Cash Flow Uncertainty}, author={Sanjai Bhagat and Iulian Obreja}, year={2011} }