Type of the article: Research Article
Abstract
Cash flow volatility is an important source of financial uncertainty because unstable operating cash flows may weaken firms’ ability to meet obligations, sustain investment, and preserve financial flexibility. This issue is particularly relevant in emerging markets, where firms often face financing constraints and sectoral structure may shape financial stability differently. This study examines the relationship between cash flow volatility and financial stability in Jordanian listed firms and investigates whether the insurance sector responds differently to operating cash flow uncertainty compared with other non-financial firms. Financial stability is measured using the Z-score, while cash flow volatility is calculated as the rolling standard deviation of operating cash flow scaled by average total assets. The analysis uses panel data for Jordanian listed firms over 2014–2024. A three-year rolling window is applied in the baseline model, while a five-year rolling window is used as a robustness check. The regression model includes an interaction term between cash flow volatility and an insurance-sector dummy, along with firm size, leverage, firm age, and sales growth as control variables. The results indicate statistically weak evidence that the Z-score is negatively associated with cash flow volatility, albeit in a directionally weak one. But this is not statistically significant in the baseline fixed-effects model. Furthermore, the interaction between cash flow volatility and the insurance sector dummy is not statistically significant and has a different sign in one robustness specification. The study therefore does not confirm that insurance firms are structurally less sensitive to cash flow volatility. Leverage remains the most robust determinant of lower financial stability.
Acknowledgment
This research was funded through the annual funding track by the Deanship of Scientific Research, from the vice presidency for graduate studies and scientific research, King Faisal University, Saudi Arabia [Grant No. KFU263523].