The Prevalence of Long-Term Negative Free Cash Flow among Listed Companies: Evidence from WSE, Nasdaq, NYSE, and SSE
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2.2.-Max-Gajek-Tomasz-Pilewicz-The-Prevalence-of-Long-Term-Negative-Free-Cash-Flow-among-Listed-Companies_with_metadata.pdf (553.39 KB)
0000-0002-3199-9959 Date
2025
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Wydział Inżynierii Zarządzania Politechniki Białostockiej
Abstract
Financial markets rely on indicators that signal corporate health, among which free cash flow (FCF) is considered fundamental. Positive FCF is associated with financial resilience, while persistent negative FCF is often viewed as a warning sign. Understanding the scale of long-term negative FCF is therefore critical for valuation and risk assessment. Prior studies have examined short-term cash flow dynamics, generally assuming that sustained negative FCF is rare, but evidence on its long-term prevalence across markets remains limited. However, empirical evidence on multi-year patterns across diverse markets remains limited, leaving the long-term dimension underexplored. The unresolved question concerns how frequently companies report negative FCF for extended periods. If such cases are common, it challenges the premise that prolonged liquidity deficits threaten viability and calls for a reassessment of performance metrics. Addressing this issue matters for theory and practice: it clarifies whether negative FCF is a reliable distress signal or a context-dependent indicator and informs investor decision-making. This study responds by quantifying the phenomenon across four major stock exchanges: Warsaw Stock Exchange, Nasdaq, New York Stock Exchange, and Shanghai Stock Exchange over a ten-year horizon. The findings confirm that nearly one-quarter of analysed companies reported negative FCF for at least three consecutive years. This evidence advances scholarly understanding by reframing assumptions about cash flow as a universal predictor of corporate health and provides a basis for more nuanced approaches to valuation under conditions of sustained liquidity constraints.
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M. Gajek, T. Pilewicz, The Prevalence of Long-Term Negative Free Cash Flow among Listed Companies: Evidence from WSE, Nasdaq, NYSE, and SSE, Akademia Zarządzania 2025, 9(4), s. 118-140