Financial distress and free cash flow: an agent-based approach

We explore the influence of free cash flow (FCF) targets on the financial distress of firms following the methodology of agent-based modelling. The starting point is the study of Stellian, R. & Danna-Buitrago, J. P (2020), Financial distress, free cash flow, and interfirm payment network: Evidence from an agent-based model, Int J Fin Eco, 25: 598-616. The main finding is the existence of a trade-off between financial health and FCF. Higher FCF targets are associated with more financial distress in the business sector. This research project aims to improve various aspects of the agent-based model of the aforementioned paper to provide further evidence on the influence of FCF targets on financial distress in the business sector. In this respect, we use the Design-Of-Experiment paradigm to perform computational experiments, whose main purpose is to determine the extent to which financial distress changes following a change in FCF targets. Computational experiments rest on the zine01 computer infrastructure, which makes it possible reduce significantly the time execution of computational experiments, combining global high-throughput computing with local high-performance computing.