Are Debt and Incentive Compensation Substitutes in Controlling the Free Cash Flow Agency Problem?

2006 ◽  
Author(s):  
Yilei Zhang
Keyword(s):  
Cash Flow ◽  
Agency Problem ◽  
Free Cash Flow ◽  
Incentive Compensation

scholarly journals MASALAH KEAGENAN ALIRAN KAS BEBAS, MANAJEMEN LABA DAN RELEVANSI NILAI INFORMASI AKUNTANSI

2018 ◽  
Vol 15 (2) ◽  
pp. 232-246
Author(s):  
Aulia Fuad Rahman
Keyword(s):  
Earnings Management ◽  
Cash Flow ◽  
Stock Price ◽  
Value Relevance ◽  
Agency Problem ◽  
Free Cash Flow ◽  
Potential Conflict ◽  
Book Value ◽  
Negative Effect ◽  
The Impact

Free cash flow agency problem causes potential conflict of interest between managers and shareholders. Managers of firms with high free cash flow and of low growth opportunity tend to invest in marginal or even negative NPV project and use earnings management to camouflage the effects of non-wealth-maximizing investments. As a result, it is predicted that investors will react to earnings management and free cash flow agency problem and therefore reflected in stock price. In this sense, earnings management and free cash flow agency problem is predicted to have an impact on value relevance of accounting information.The objective of this study is to assess the impact of earnings management on value relevance of earnings and book value. This study also investigates the different effect of earnings management on value relevance of earnings and book value between free cash flow agency problem firms and non free cash flow agency problem firms. Result shows that earnings and book value are value relevance and earnings management decreases those value relevances. The result also conclude that the negative effect of earnings management on value relevance of earnings and book value is higher for free cash flow agency problem firms compared to non free cash flow agency problem firms.

scholarly journals MASALAH KEAGENAN ALIRAN KAS BEBAS, MANAJEMEN LABA DAN RELEVANSI NILAI INFORMASI AKUNTANSI

2017 ◽  
Vol 15 (2) ◽  
pp. 232
Author(s):  
Aulia Fuad Rahman
Keyword(s):  
Earnings Management ◽  
Cash Flow ◽  
Stock Price ◽  
Value Relevance ◽  
Agency Problem ◽  
Free Cash Flow ◽  
Potential Conflict ◽  
Book Value ◽  
Negative Effect ◽  
The Impact

Free cash flow agency problem causes potential conflict of interest between managers and shareholders. Managers of firms with high free cash flow and of low growth opportunity tend to invest in marginal or even negative NPV project and use earnings management to camouflage the effects of non-wealth-maximizing investments. As a result, it is predicted that investors will react to earnings management and free cash flow agency problem and therefore reflected in stock price. In this sense, earnings management and free cash flow agency problem is predicted to have an impact on value relevance of accounting information.The objective of this study is to assess the impact of earnings management on value relevance of earnings and book value. This study also investigates the different effect of earnings management on value relevance of earnings and book value between free cash flow agency problem firms and non free cash flow agency problem firms. Result shows that earnings and book value are value relevance and earnings management decreases those value relevances. The result also conclude that the negative effect of earnings management on value relevance of earnings and book value is higher for free cash flow agency problem firms compared to non free cash flow agency problem firms.

scholarly journals Agency cost of type I and accounting numbers in Australia and India

2016 ◽  
Vol 13 (4) ◽  
pp. 307-316 ◽  
Author(s):  
Lious Ntoung Agbor Tabot ◽  
Outman Ben Chettah ◽  
Eva Masárova
Keyword(s):  
Cash Flow ◽  
Manufacturing Industry ◽  
Value Relevance ◽  
Agency Problem ◽  
Agency Cost ◽  
Free Cash Flow ◽  
Service Industries ◽  
Type I ◽  
Book Value ◽  
Accounting Numbers

This paper has as objective to assess the agency cost of type I on the value relevance of accounting numbers (earnings and book value) for all listed firms in the manufacturing, retailing and service industries in Australia and India from 2005 to 2012 using the modified version of the Ohlson’ model in Faud and Mohd, (2008) where price is express as a linear function of earnings, book value and various accounting numbers. As predicted, the results show that both earnings and book value are value relevance for the manufacturing, retailing and servicing industry in Australia and India. The presence of the free cash flow agency problem caused the value relevance of earnings and book value to decline in Australia and India. However, the effect is not stable across the difference industries. The results show that in the manufacturing industry, the effect caused by the free cash flow agency problem is relatively higher for Australia and India than in the retail and service industries. As a result, the firms in the manufacturing with free cash flow agency problem have lower earnings (book value) coefficients than those without free cash flow agency problem

scholarly journals Ownership concentration, free cash flow agency problem and future firm performance: New Zealand evidence

2012 ◽  
Vol 9 (3) ◽  
pp. 96-110
Author(s):  
Haiyan Jiang ◽  
Ahsan Habib
Keyword(s):  
New Zealand ◽  
Firm Performance ◽  
Cash Flow ◽  
Ownership Structure ◽  
Financial Institution ◽  
Agency Problem ◽  
Cash Flows ◽  
Free Cash Flow ◽  
Ownership Concentration ◽  
Free Cash Flows

This study seeks to empirically examine the effect of ownership concentration on mitigating free cash flow agency problem in New Zealand. Following Jensen’s (1986) argument that managers have incentives to misuse free cash flows, this study tests whether concentrated ownership structure helps alleviate such a problem or exacerbates it. A natural consequence of this agency problem will be overinvestment and other operational inefficiencies which are likely to have a detrimental impact on firms’ future performance. The second objective of this paper is to examine the association between FCFAP conditional on ownership concentration on future firm performance. We measure free cash flow agency problem as the product of positive free cash flows and growth opportunities proxied by Tobin’s Q and find that financial institution-controlled ownership structure in New Zealand is positively associated with free cash flow agency problem. We also document that free cash flow agency problem conditional on ownership concentration negatively affects future firm performance.

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