Format of Original
Stillman School of Business
Mid-Atlantic Journal of Business
To examine the impact of floating rate loans and interest rate volatility on aggregate cash flow, quarterly data covering the period 1974 to 1990 for 14 two-digit Standard Industrial Classification manufacturing industries were analyzed. The results indicate that changes in the short-term interest rate and-or interest rate volatility have a significantly negative impact on the cash flow of a total of 11 of the 14 firms considered. Although the inverse relationship between corporate cash flow and interest rate is worth mentioning, the heterogeneity of this relationship across industries, however, is more interesting. The magnitude of the decline in cash flow tends to vary between industries, and it likely accounts for a different share of total cash flow. Firms with floating rate debt in the more sensitive industries should be especially cautious because the greater the amount of debt that is financed with floating rates, the more susceptible the firm will be to having unexpected decreases in cash flow.