Financial Constraints, Cash Flow Timing Patterns, and Asset Prices

We show that firms collect more than 70% of their cash flow in the second half of the fiscal year, and firms that collect more cash by year-end earn a 6% higher per annum risk premium and save more cash. We rationalize these facts in a quantitative investment-based asset pricing model. Immediate cash payments negatively affect profitability, but reduce equity financing cost by increasing information transparency. Financial constrained firms optimally collect more cash at year-end when firms' performance attracts more attention and information transparency is more valuable. Such behavior further results in greater exposure to aggregate productivity and financial shocks