A test of the free cash flow hypothesis

The Impacts of Free Cash Flows and Agency Costs on Firm Performance

“…Recent empirical studies also supported this argument. For example, Lang et al [27] examined 101 merger cases and found that free cash flows might deteriorate the q ratio of a firm in mergers and acquisitions. Chung et al [7] found that free cash flows might incur agency costs so as to inversely influence short-term operating cash flows, thus undermining long-term firm value.…”

“…Empirically, Tobin's q ratio is commonly suggested as a proxy for firm value, as shown in Lang et al [27] and Fama and French [33]. The q ratio is defined as follows:…”

Tobin's q, Corporate Diversification, and Firm Performance

“…There is weak evidence that these firms outperform the firms with ' See Jensen (1985). See also Lang, Walkling and Stulz (1991) for supportive evidence. 35 five segments or more that do not choose to become more focused contemporaneously.…”

Signalling to Dispersed Shareholders and Corporate Control

“…In Müller and Panunzi (2004)'s symmetric information setting, takeover leverage is negatively correlated with bid premia (though positively with bidder returns) given that its purpose is to lower the target shareholders' reservation price. As tentative evidence, they cite Maloney et al (1993) and Lang et al (1991) who find that bidder leverage is positively related to bidder returns but negatively to target shareholder returns, but note that both studies consider preexisting leverage, as opposed to debt raised as part of a bootstrap acquisition.…”