scholarly journals Overinvestment of Free Cash Flow and Manager’s Overconfidence

2018 ◽  
Vol 11 (3) ◽  
pp. 48 ◽  
Author(s):  
EL Gaied Moez ◽  
Zgarni Amina
Keyword(s):  
Empirical Study ◽  
Behavioral Finance ◽  
Positive Relationship ◽  
Cash Flows ◽  
Free Cash Flow ◽  
Investment Expenditure ◽  
Investment Distortions ◽  
Proxy Measure ◽  
Behavioral Attributes ◽  
Free Cash Flows

The problem of over-investment of free cash flows has been heavily debated in the financial literature of companies. However, only a handful of studies have examined this problem in the context of behavioral finance. The objective of this article is to study the effect of the manager’s overconfidence on the over-investment of the free cash flows. We construct a proxy measure of overconfidence and we use Richardson’s model to measure over-investment expenditure. Our empirical study was conducted on a sample of 150 US companies and for a period from 1995 to 2012. Our results show a positive and significant relationship between over-investment and free cash flows. Also, we find the positive relationship is greater when managers are highly confident. The results generated by this study confirm that investment distortions are associated with behavioral attributes or biases.

scholarly journals A test of audit committee characteristics and free cash flows

2013 ◽  
Vol 10 (2) ◽  
pp. 611-626 ◽  
Author(s):  
Samuel Jebaraj Benjamin ◽  
Kiarash Ehtiat Karrahemi
Keyword(s):  
Agency Theory ◽  
Cash Flow ◽  
Audit Committee ◽  
Positive Relationship ◽  
Cash Flows ◽  
Free Cash Flow ◽  
Transaction Cost Theory ◽  
Pecking Order ◽  
Free Cash Flows ◽  
The Impact

The study concentrates on audit committee characteristics and their influences on free cash flow. A panel of 120 firms from the trading and services industry from the year 2005 to 2008 is examined. The results show a significant and positive relationship between Audit Committee characteristics (size, independence, frequency of meetings) and free cash flows. These findings suggest that effective audit committee governance leads to availability of higher free cash flows. Our study draws upon the lack of understanding on the impact of audit committee characteristics on free cash flow along the two views; agency theory and pecking order/transaction cost theory and finds support for the later.

scholarly journals The Impact of Free Cash Flows to the Financial Flexibility of the Banks listed in the Colombo Stock Exchange

2021 ◽  
pp. 23-27
Author(s):  
Nadhira .. ◽  
◽  
◽  
Maha Saad Metawea
Keyword(s):  
Ownership Structure ◽  
Positive Relationship ◽  
Stock Exchange ◽  
Investment Decisions ◽  
Cash Flows ◽  
Free Cash Flow ◽  
Panel Regression ◽  
Financial Flexibility ◽  
Free Cash Flows ◽  
The Impact

There are considerable arguments in favour of and against the positive relationship between free cash flows (FCF) and financial flexibility. The aim of the study is to determine the impact of free cash flows on the financial flexibility of the banks listed in the Colombo Stock Exchange (CSE). The free cash flow will measure according to the model in Journal of Finance: Agency costs and ownership structure in 2000 and financial flexibility will determine using the financial leverage based on the model captured according to the Accounting Horizons Journal: Financial flexibility and investment decisions in 2007 . The population of the study is the banks listed in the CSE. The sample consists of 60 observations covering 12 banks for a period of over 05 years from 2015 to 2019. The panel regression model has been used to test hypotheses. The results indicate that there is a positive significant relationship between free cash flows and the financial flexibility of the banks listed in CSE.

scholarly journals The applicability of FCFF method evaluating an enterprise of Real Estate segment

2021 ◽  
Vol 91 ◽  
pp. 01042
Author(s):  
Jaromír Vrbka ◽  
Pavla Vitková
Keyword(s):  
Real Estate ◽  
Deep Understanding ◽  
Cash Flows ◽  
Free Cash Flow ◽  
Capital Asset Pricing ◽  
The Real Estate ◽  
Asset Pricing Model ◽  
Enterprise Valuation ◽  
Suggested Technique ◽  
Free Cash Flows

The article aims at evaluating a specific enterprise of the Real Estate segment using FCFF (Free Cash Flow to Firm) method. This technique determines the company’s value through free cash flows. Enterprise valuation presents a distinct discipline requiring appraiser’s deep understanding not only of the evaluated enterprise but also other external decisive influences. The theoretical part focuses on calculation procedures using The CAPM (Capital Asset Pricing Model) model quantifying separate variables that determine discount rates. The suggested technique deals with specific financial data of the company and is applicable in evaluating small and medium-sized enterprises.

scholarly journals Interactions between free cash flow, debt policy and structure of governance: Three stage least square simultaneous model approach: evidence from the Tunisian stock exchange

2012 ◽  
Vol 9 (2) ◽  
pp. 21-40 ◽  
Author(s):  
Ben Moussa Fatma ◽  
Jameleddine Chichti
Keyword(s):  
Cash Flow ◽  
Stock Exchange ◽  
Cash Flows ◽  
Free Cash Flow ◽  
Least Square ◽  
Agency Conflicts ◽  
Governance Mechanism ◽  
Free Cash Flows ◽  
Debt Policy ◽  
Simultaneous Model

This research tests the efficiency of the ownership structure and the debt policy as mechanism of resolution of agency conflicts between shareholders and managers due to the problem of overinvestment, in the limitation of the problem of the free cash flow, by estimating three stage least square simultaneous model and on the basis of a sample of 35 non-financial Tunisian listed companies selected for the period 1999–2008. Our results are in favour of the theory of free cash flows of Jensen (1986) that stipulates that the debt policy represents the principal governance mechanism that can limit the risk of free cash flow. However, the ownership concentration and managerial ownership increase the risk of the free cash flow.

scholarly journals Corporate Governance and Firm Free Cash Flows: Evidence from Malaysia

2013 ◽  
Vol 5 (11) ◽  
pp. 531-537
Author(s):  
Razieh Adinehzadeh
Keyword(s):  
Corporate Governance ◽  
Cash Flow ◽  
Audit Committee ◽  
Cash Flows ◽  
Free Cash Flow ◽  
Governance Mechanism ◽  
Data Set ◽  
Corporate Governance Mechanism ◽  
Free Cash Flows ◽  
The Relationship

This study provides view of free cash flow and corporate governance (CG) by addressing the relationship between audit committee characteristics with free cash flow. Specifically, this study explores whether audit committee characteristics are substitutes to control agency problem regarding to free cash flow within Malaysian firms. The data set comprise of 200 firm observations Malaysian companies for four consecutive years, which comprise of 2005 to 2008. The results show that size of audit committee, frequency of audit committee meeting, proportion of audit committee independence is positively associated with level of free cash flow (FCF). The results of study highlight the importance of corporate governance mechanism, in the form of audit committee characteristics, in the management of cash flow.

An Evaluation of Chinese Firms' Profitability: 2005–2013

2015 ◽  
Vol 29 (4) ◽  
pp. 799-828 ◽  
Author(s):  
Jing Liu ◽  
James A. Ohlson ◽  
Weining Zhang
Keyword(s):  
Cash Flow ◽  
Balance Sheet ◽  
High Growth ◽  
Cash Flows ◽  
Free Cash Flow ◽  
Sample Period ◽  
Chinese Firms ◽  
Capital Growth ◽  
Free Cash Flows ◽  
The U.S

SYNOPSIS We empirically examine the profitability of leading Chinese firms, benchmarked against comparable U.S. firms, for the period 2005–2013. Return on invested capital (ROIC), which excludes leverage effects on performance, provides the primary metric. Averaged over firms and years, the two sets of firms have similar profitability, about 11 percent annually. Decomposing ROIC into free cash flow yield and invested capital growth, we show that the same ROIC has very different compositions: while the Chinese firms have high growth and negative free cash flows, the U.S. firms have low growth and positive free cash flows. Due to balance sheet conservatism, we infer that Chinese (U.S.) firms' free cash flow yields and the resulting ROICs have been biased downward (upward). After correcting for the bias, we show that Chinese firms have much higher profitability than their U.S. counterparts: 15.1 percent versus 8.1 percent. This result is driven by the abundance of growth opportunities in China in our sample period. When we control for the growth rates, we find U.S. firms have been more “efficient” in generating more free cash flows than Chinese firms.

Free Cash Flow, Kinerja Internal, Dan Pengaruhnya Terhadap Nilai Perusahaan

Liquidity ◽  
2018 ◽  
Vol 7 (1) ◽  
pp. 63-69
Author(s):  
Irma Sari Permata ◽  
Nana Nawasiah ◽  
Trisnani Indriati
Keyword(s):  
Cash Flow ◽  
Firm Value ◽  
Cash Flows ◽  
Free Cash Flow ◽  
Corporate Value ◽  
Manufacturing Companies ◽  
Flow Problems ◽  
Internal Conflicts ◽  
Company Value ◽  
Free Cash Flows

The purpose of this study is to answer the phenomena that occur both theoretical phenomena and the empirical phenomenon of potential internal conflicts to the free cash flow of the company and its use for the benefit of increasing corporate value. Such internal conflicts require an appropriate settlement so as not to affect the company's failure. This study examines the role of dividend policy and ownership structure in moderating the relationship between free cash flow and firm value on manufacturing companies listed on BEI as many as 236 companies using randon sampling method. Free cash flows, profitability, firm size have a significant effect on company value while company growth has no significant effect. Dividends and majority ownership and managerial moderate free cash flow against corporate value. The results of this study are expected to generate alternative solutions to free cash flow problems and increase the value of the company.  

scholarly journals The Role of Dividend Payout in the Determination of the Relationship Between Earnings Before Interest and Tax Cash Flow From Operations, Capital Expenditures and Firm Sustainable Cash Flows: A Case Of Non-Financial Firms

2018 ◽  
pp. 382-390
Keyword(s):  
Cash Flow ◽  
Stock Exchange ◽  
Predictive Ability ◽  
Cash Flows ◽  
Free Cash Flow ◽  
Capital Expenditures ◽  
Dividend Payout ◽  
Financial Firms ◽  
Free Cash Flows

The prime objective of the current study is to determine the predictive ability to earnings before interest and tax, cash flow from operations, dividend payout, and capital expenditures for free cash flows. In addition to the current study is also intended to highlight the moderating role of dividend payout predictive ability to earnings before interest and tax, cash flow from operations, and capital expenditures for free cash flows. To achieve the objective of the study the data of 100 listed non-financial firms are collected from the annual report of the firms listed on the Iraq Stock Exchange. The data is collected over a period of six years from 2012-2017. To achieve the first set of objective regarding the direct results we have chosen OLS as a final statistical test after undergoing basic diagnostic analysis. To achieve the second set of objectives regarding the indirect effect of dividend payout, we have used the hierarchical multiple regression models.The statistical software, STATA is used for the analysis purpose. The findings of the study have shown a great deal of agreement with hypothesized results and also provided support to the pecking order theory and theory of free cash flow. The findings of the study will be helpful for policymakers, investors, scholars, and students in understanding the key factors which affect the free cash flow decisions and determine its predictability.

scholarly journals The Effect of Investment, Free Cash Flow, Earnings Management, and Interest Coverage Ratio on Financial Distress

2021 ◽  
Vol 2 (1) ◽  
pp. 67-73
Author(s):  
Meryana ◽  
Erna Setiany
Keyword(s):  
Earnings Management ◽  
Cash Flow ◽  
Financial Distress ◽  
Cash Flows ◽  
Free Cash Flow ◽  
Coverage Ratio ◽  
Financial Difficulties ◽  
Score Method ◽  
Free Cash Flows ◽  
Retained Earnings

The purpose of this research is to test investments, free cash flow, earnings management, and interest coverage ratio are affecting the risk of financial distress in healthy enterprises.. Healthy companies can be seen from how large the value of working capital, retained earnings, income before tax, market value and sales implemented in the measurement of the financial difficulties model with the Altman Z-score method. Collection of data by purposive sampling and number of samples as many as 33 companies in the category of healthy companies. The results show that free cash flows and interest coverage ratio significant effect on the financial difficulties of healthy companies whereas investment and earnings management had no significant effect on the financial difficulties of healthy companies

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