Analysing the Impacts of Free Cash Flow, Agency Cost and Firm Performance in Public Listed Companies in Malaysia

This study intended to examine the relationship between free cash flow and agency costs towards firm performance based on the data from 350 public listed companies in Malaysia. The data was collected from year 2005 to 2015. There is a need to re-examine the free cash flow hypothesis and the agency theory based on Malaysian data as the results from previous studies shown a mix results.The findings shown free cash flow is significantly giving positive impact on firm performance. This result is contradict to free cash flow hypothesis, but it can occur due to, when the availability of investments opportunities that can be generated when firm more free cash flow that later able to increase firm performance. Meanwhile, total asset turnover has a positive impact on return on asset. However, the operating expenses ratio demonstrates that the operating expenses ratio has a negative impact on return on asset. The mix findings of agency cost are supported by previous studies.

Agency Conflicts and the Marginal Value of Capital Expenditure in Australian Listed Companies

We examine the value implications of Jensen’s free cash flow hypothesis for a sample of Australian listed companies. Consistent with the US evidence in Masulis, R, C Wang and F Xie (2009). Agency problems at dual-class companies. Journal of Finance, 64(4), 1697–1727, we find that the marginal value of corporate capital expenditures in Australian listed companies is inversely related to the magnitude of agency conflicts arising out of the use of free cash flows. Our results suggest that firms where managers have a greater ability to extract private benefits and are therefore more likely to maximize their own private benefits rather than shareholder wealth will suffer from a lower perceived valuation of their capital investments. Our findings are robust to alternative proxies for relative cash flows and growth opportunities and also hold over multiple sub-periods and industry groupings.

Free Cash Flow and Earnings Management

This study draws on Jensen's free cash flow hypothesis to evaluate the relationship between free cash flow and earnings management. This study also examines whether the level of leverage moderate the relationship between free cash flow and earnings management. This study uses a fixed effects regression model to examine the effect of free cash flow on earnings management and to test whether leverage levels moderate that relationship for an unbalanced panel of 13,850 firms' year observations from 2011 to 2018 across five European countries. Consistent with the free cash flow hypothesis of Jensen, this study suggests that firms with high free cash flow are more likely to manage earnings. Further, the results also suggest that the positive impact of free cash flow on earnings management is attenuated in firms with high leverage levels. This study contributes to the literature by examining how free cash flow affects the extent of earnings management and by shedding light on the mediating effect of leverage on the relationship between free cash flow and earnings management.

Impact of Agency Costs on Financial Performance of Listed Consumer Goods Companies in Nigeria

This paper examined impact of agency costs on financial performance of listed consumer goods companies in Nigeria. The research utilized documentary data collected from annual reports of consumer goods companies in Nigeria for the period of 2007-2016. A panel data regression technique was employed. The study reveals inverse relationship between agency costs and financial performance, indicating that agency costs will lead to a decline in financial performance, if not properly managed. Based on this result the study recommends that managements of listed consumer goods companies in Nigeria should lay down effective rules and regulations that will ensure avoidance of keeping free cash flow at managers’ discretion so that agency costs could be minimized and effectively managed. This could be achieved by complying with the suggestions by free cash flow hypothesis paying it out in the form of cash dividend or committing the firms in to more financial obligations which requires periodic interest payments. There should be critical reviewed before such action are taken by companies in consumer goods industries.

Sectoral Analysis of Factors Influencing Dividend Policy: Case of an Emerging Financial Market

This study aims to determine whether a firm’s dividends are influenced by the sector to which it belongs. This paper also examines the explanatory factors for dividends across individual sectors in India. This longitudinal study uses balanced data consisting of companies listed on the National Stock Exchange (NSE) of India for 12 years—from 2006 to 2017. Pooled ordinary least squares (POLSs) and fixed effects panel models are used in our estimation. We find that size, profitability, and interest coverage ratios have a significant positive relation to dividend policy. Furthermore, business risk and debt reveal a significantly negative relation with dividends. The findings on profitability support the free cash flow hypothesis for India. However, we also found that Indian companies prefer to follow a stable dividend policy. As a result of this, even firms with higher growth opportunities and lower cash flows continue to pay dividends. We also find evidence that dividend policies vary significantly across industrial sectors in India. The results of this study can be used by financial managers and policymakers in order to make appropriate dividend decisions. They can also help investors make portfolio selection decisions based on sectoral dividend paying behavior.

Corporate Governance and Firm Performance: A Study of High Agency Costs of Free Cash Flow Firms

Excessive free cash flows can lead to high agency problems as retaining free cash flow reduces the ability of capital market to monitor managers. Managers are also likely to waste the free cash flow on value-decreasing investments. Based on the free cash flow hypothesis, this study examines the relationship between corporate governance and firm performance of a sample of high agency costs of free cash flow firms, which is defined as firms that have high free cash flow and low investment opportunities. The sample firms are extracted from firms listed on the S&P/TSX composite index between 2009 and 2012. Using corporate governance scores provided by The Globe and Mail, this study finds that better corporate governance is associated with better firm performance, measured by return on equity. The results highlight the importance of corporate governance in protecting shareholders’ interests.

RELATIONSHIP BETWEEN BOARD CHARACTERISTICS AND FIRM FINANCIAL DIVERSIFICATION (GEOGRAPHIC SALES) AMONG LISTED FIRMS ON NAIROBI SECURITIES EXCHANGE, KENYA: STATIC PANEL APPROACH

Purpose: The purpose of the study was to determine the relationship between board characteristics and firm financial diversification (geographic sales) among listed firms on Nairobi securities exchange, Kenya: static panel approach.Methodology: Fisher and Levin-Lin-Chu tests were used to test the presence of unit root in the series under study. Hadri residual-based Lagrange multiplier test was used to determine the feasible model.Results: Results revealed existence of positive and significant relationship between interlock directorship and geographic diversification as positive and significant directors’ remuneration had a negative and significant effect on firm’s geographic sales, while operational risk negatively varied with geographic sales Agency Theory, free cash flow hypothesis Resource Based view theory provided theoretical framework. Directors’ remuneration negatively impacted geographic sales but did not explain diversification in relation to national sales. This study affirmed the managerial heuristics as determinant of firm financial diversification providing support to the convectional financial dimensions of firm performance particularly ROE, ROI and EPS.Unique contribution to theory, practice and policy: The Government of Kenya and Capital Market regulator should enact and implement legislations that guides on interlock directorship, directors remuneration diversity and tolerable operational risks as determinants of diversification