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.
Current practice shows that firms throughout the world are in favor of high cash holdings; yet, they are still performing well. This situation contradicts the agency and free cash flow theories, which suggest that excessive cash may increase agency costs and lower firm performance. The purpose of this study is to examine the relationship between corporate governance, cash holdings, and firm performance. Five thousand four hundred twenty observations were conducted, and a balanced panel data analysis was performed. The results indicate that corporate governance has a significant impact on cash holdings, corporate governance has a significant impact on firm performance, and cash holding has a significant impact on a firm's performance. The findings of this study do not show any evidence to support the agency and free cash flow theories among non-financial Malaysian firms listed on Bursa Malaysia. Thus, this study contributes to the finance and accounting literature by gaining a better understanding of firm performance indicators in Malaysia, specifically.
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