Corporate Financing Activities and Business Cycle Fluctuations
Hann, Rebecca N., Li, Congcong, Mazur, Laurel, Lee, Hanna
The Accounting Review · 2025 · Volume 100 · Issue 5
Abstract
We examine whether corporate financing activities (CFA) in aggregate convey information about the macroeconomy. Using statement of cash flow information to construct a bottom-up measure of CFA, we find that it has significant predictive power for future economic activity when we exclude a small set of firms whose external financing is largely insulated from macroeconomic conditions. This CFA index has predictive power beyond that of the Gilchrist-Zakrajsek credit spread, aggregate earnings, and other macroeconomic indicators in predicting future GDP in both in-sample and out-of-sample forecasting tests. Impulse responses from a structural vector autoregression show that unexpected decreases in this CFA index lead to a large and persistent contraction in economic activity for up to four quarters. Our results suggest that a simple portfolio-based CFA measure helps capture supply-of-capital effects from the financial accelerator mechanism and hence has significant incremental predictive power for real economic activity. Data Availability:Data are available from the public sources cited in the text. JEL Classifications:E32; E37; G17; M41.
Keywords
corporate financing activities, cash flow statements, financial frictions, financial accelerator, forecasting
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