This paper shows that (1) the sensitivity of corporate saving to cash flow does not systematically decrease with a country’s financial development, and (2) the sensitivity systematically increases with macro uncertainty. The first result occurs because income variability matters more for saving than external finance constraints and because income variability is strongly positively correlated with financial development. The second result occurs because macro uncertainty magnifies the effect of external finance constraints on corporate saving, raises the variability of income flows, and reduces the attractiveness of investment opportunities. Therefore, contrary to previous evidence, saving-cash flow sensitivity cannot be directly used to test for the benefits of financial (and institutional) development, but it can be used to assess the impact of uncertainty on firms’ demand for internal liquidity.

JEL Classification Number: G15, G31.

Keywords: saving-cash flow sensitivity; finance constraints; income variability; financial development; macro uncertainty.