The Agency Costs of Free Cash Flow: Acquisition Activity and Equity Issues

1991 ◽  
Vol 64 (2) ◽  
pp. 213 ◽  
Author(s):  
Steven V. Mann ◽  
Neil W. Sicherman
Keyword(s):  
Cash Flow ◽  
Agency Costs ◽  
Free Cash Flow ◽  
Equity Issues

CEO Entrenchment and Corporate Hedging: Evidence from the Oil and Gas Industry

2013 ◽  
Vol 48 (3) ◽  
pp. 887-917 ◽  
Author(s):  
Praveen Kumar ◽  
Ramon Rabinovitch
Keyword(s):  
Cash Flow ◽  
Financial Distress ◽  
Agency Costs ◽  
Oil And Gas ◽  
Price Volatility ◽  
Chief Executive ◽  
Oil And Gas Industry ◽  
Free Cash Flow ◽  
Data Set ◽  
Corporate Hedging

AbstractUsing a unique data set with detailed information on the derivative positions of upstream oil and gas firms during 1996–2008, we find that hedging intensity is positively related to factors that amplify chief executive officer (CEO) entrenchment and free cash flow agency costs. There is also robust evidence that hedging is motivated by the reduction of financial distress and borrowing costs, and that it is influenced by both intrinsic cash flow risk and temporary spikes in commodity price volatility. We present a comprehensive perspective on the determinants of corporate hedging, and the results are consistent with the predictions of the risk management and agency costs literatures.

Agency Cost and Dividend Pay-out: A Study of Selected Listed Manufacturing Firms in Nigeria

2018 ◽  
Vol 1 (1) ◽  
pp. 42 ◽  
Author(s):  
Helen Obiageli Anazonwu ◽  
Francis Chinedu Egbunike ◽  
Felix Nwaolisa Echekoba
Keyword(s):  
Cash Flow ◽  
Agency Costs ◽  
Stock Exchange ◽  
Agency Cost ◽  
Manufacturing Firms ◽  
Free Cash Flow ◽  
Dividend Payments ◽  
Negative Effect ◽  
Cost Studies ◽  
Positive Effect

Agency cost is an internal cost which arises between management (agent) and shareholder (principal), because of the diverging interest of the two parties. Dividend payments are often employed to mitigate this cost. Studies have examined the effect of dividend pay-outs on agency costs documenting mixed findings. However, the literature on the reverse effect of agency costs on dividend pay-outs is still nascent. The main objective of the study is to examine the effect of agency cost on dividend pay-out of listed manufacturing firms in Nigeria. The study used a panel research design. The population of the study comprised listed manufacturing firms, but delimited to firms in conglomerate and consumer goods sectors of the Nigerian Stock Exchange. Data for the study were collected from yearly financial statements of the selected firms. The hypotheses were tested using pooled OLS Regression. The dependent variable of the study was dividend pay-out, while assets to sales ratio, leverage, and free cash flow were proxies of agency cost. Firm size and profitability measures (ROA and ROE) were used as control variables in the study. The study found a significant and positive effect of assets to sales ratio and free cash flow, and a significant and negative effect of leverage on dividend pay-out. The study recommended amongst others that, managers should consider the implication of agency costs in the design of in the design and implementation of a dividend policy.

scholarly journals Analyzing the Link Between Agency Problems, Governance and Control Attributes for Pakistan

e-Finanse ◽  
2017 ◽  
Vol 13 (3) ◽  
pp. 43-65 ◽  
Author(s):  
Ahmad Ghazali ◽  
Ahmad Raza Bilal
Keyword(s):  
Corporate Governance ◽  
Cash Flow ◽  
Agency Costs ◽  
Stock Exchange ◽  
Agency Problems ◽  
Agency Cost ◽  
Free Cash Flow ◽  
Listed Firms ◽  
Utilization Ratio ◽  
Sound Policy

AbstractThis research attempts to analyze the relationship between agency, control and corporate governance attributes for a sample of 267 firms listed on the Pakistan Stock Exchange (PSX) from 2005 to 2008. The results show that a) Pakistani listed firms are facing high agency costs problems in contrast to established markets. b) Factors are observed important to having strong effect on mitigating agency costs levels: corporate dividend policy, degree of board independence, and institutional ownership. c) Corporate governance factors reduce discretionary expenditure ratio, increase assets utilization ratio and free cash flow ratio. d) Control variables increases the asset utilization ratio and decreases the free cash flow and increases the managers’ performance (Tobin’s Q ratio). e) Ownership attributes regulate free cash flow and decrease the discretionary expenditure ratio. The outcomes of this research lead to the proposed use of recommended governance, control and ownership attributes to overcome agency problems and a sound policy for better corporate governance (better management of agency cost issues) for listed firms.

scholarly journals The impact of free cash flow, equity concentration and agency costs on firm’s profitability

2017 ◽  
Vol 14 (2) ◽  
pp. 19-26 ◽  
Author(s):  
Haitham Nobanee ◽  
Jaya Abraham
Keyword(s):  
Stock Market ◽  
Agency Theory ◽  
Cash Flow ◽  
Agency Costs ◽  
Free Cash Flow ◽  
Insurance Firms ◽  
The Impact

This paper examines how free cash flow and equity concentration are associated with agency costs, and how they influence the profitability of insurance firms listed on the Saudi Stock Market. The results indicate that equity concentration has no significant impact on agency costs, free cash flow has no significant impact on agency costs and agency costs have no significant impact on firm’s profitability. The findings of this study do not show any evidence to support the agency theory among insurance firms listed on the Saudi Stock Market.

scholarly journals Do Institutional Investors Aleviate Agency Costs in R&D Investment Decisions?

2017 ◽  
Vol 6 (3) ◽  
pp. 24
Author(s):  
Ricky William Scott
Keyword(s):  
Cash Flow ◽  
Institutional Investors ◽  
Agency Costs ◽  
Investment Decisions ◽  
Agency Problems ◽  
Free Cash Flow ◽  
Good Investment ◽  
Institutional Shareholders ◽  
Difference Gmm ◽  
D Investment

This study tests whether institutional investors encourage R&D investment in firms with potential agency problems. Firm and year fixed effect regressions and difference-GMM regressions are used to examine the effect of changes in institutional investor levels to subsequent changes in R&D investment levels. Increased institutional ownership leads to increased R&D investment and this relationship is stronger in firms more susceptible to agency problems. Agency-based free cash flow theory predicts that institutional investors will encourage R&D investment in firms with good investment opportunities, but they will not encourage R&D investment simply because a firm has higher free cash flow. My results support this prediction indicating that institutional investors help to control agency problems in R&D investment decisions. The results in this paper indicate that this may lead to a decrease in agency costs in R&D decisions, thus benefiting institutional and non-institutional shareholders.

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