Employment, Corporate Investment and Cash Flow Uncertainty

In this paper we explore the role of cash flow uncertainty on co rporate employment and corporate investment. We develop a novel approach towards measuring cash flow risk, and we consider investment in both tangible and int angible assets. We find that our measures of cash flow uncertainty have a significa ntly negative impact on corporate employment and corporate investment in both tangible and intangible assets. Economically, if cash flow uncertainty were to rever t to levels observed back in 2005, corporate employment would increase by more than 1.89 million jobs, investment in tangible assets would increase by more than 10%, and investment in intangible assets would increase by more than 19%. Furthermore, we document that our risk measures have had a more negative impact on corporate employment and corporate investment in tangible and intangible assets dur ing economic recessions than during economic expansions. These findings have signifi cant 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.