Hongyi Xu

Hongyi will be on the 2026-2027 Job Market.

Job market paper: The Expected Future Cash Flow Channel in Debt Financing 

Abstract: This paper provides the first evidence that expected future cash flows increase firms' debt capacity independently of collateral values. I identify exogenous variation in expected future cash flows using new major product liability litigations involving firms' product-market peers. A 1% increase in sales increases net long-term debt issuance by 14.97% for the average Compustat firm, equivalent to 1.55% of average total debt. The effect cannot be explained by changes in investment opportunities or collateral values and is concentrated among firms with lower growth opportunities, tighter financial constraints, and lower asset tangibility. Firms experiencing positive expected future cash flow shocks increase investment and cash holdings, issue more unsecured debt, and borrow at lower bond yields, while leverage and shareholder payouts remain unchanged. These findings establish expected future cash flows as a distinct source of borrowing capacity and highlight an importance of expected future cash flow channel in debt financing.