How Much Cash Is At Risk In U.S. Non-Financial Firms? A VaR-Type Measurement

Abstract

Risk management techniques first developed by, and for, banks are now being adopted by non-financial corporations. However, while firms are already engaged in activities intended to develop their risk management practices, they often do not possess risk measures focused on key corporate financial results such as earnings or cash flow. The main contribution of this paper is to develop a cash flow-based risk measure conditional on specific company-level factors. With U.S. firm-level data, we present evidence that Cash Flow-at-Risk and Expected shortfall differ across main non-financial industries. Our results call for renewed attention to the role that VaR-type measures for cash flow can play in empirical studies dedicated to corporate risk analysis, and with respect to corporate-level risk management purposes.