We show that higher cash flow volatility is associated with lower average levels of investment in capital expenditures, R&D, and advertising. This association suggests that firms do not use external capital markets to fully cover cash flow shortfalls but rather permanently forgo investment. Cash flow volatility also is associated with higher costs of accessing external capital. Moreover, these higher costs, as measured by some proxies, imply a greater sensitivity of investment to cash flow volatility. Thus, cash flow volatility not only increases the likelihood that a firm will need to access capital markets, it also increases the costs of doing so.