Empirical Investigation of Free Cash Flow Hypothesis: Evidence from Jordanian Capital Market

Zurigat, Ziad Mohammad; Sartawi, Iaad I.S. Mustafa; Aleassa, Hasan M.

doi:10.5539/ibr.v7n3p137

Cited by 4 publications

(3 citation statements)

References 39 publications

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“…Free cash flow refers to the cash resources over and above the amount needed to finance approved investment activities considered to possess a positive net present value (Zurigat et al, 2014). The free cash flow theory was proposed by Jensen (1986), who argued that, for firms that are more likely to have high amounts of excess funds but without apparent investment opportunities, debt becomes an efficient way of resolving the agency costs associated with free cash flow.…”

Section: Free Cash Flow Theorymentioning

confidence: 99%

Capital Structure, Financial Capacity and Financial Performance of Small and Medium Enterprises in the Buganda Region, Uganda

Mugisha¹,

Omagwa²,

Kilika³

2022

jmv

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The purpose of this research is to diagnose the financial performance of small and medium-sized companies that produce coffee products in Colombia. To this end, information from the 2015-2020 period available from the EMIS Professional database has been analyzed. The methodology of the study examines the accounting and value management indicators that measure its growth, efficiency, efficiency and effectiveness. It is found that the SME grows in sales and assets and achieves an average accounting return. The return for median investors is higher due to their greater efficiency in the use of assets. The return for small business owners is superior by being more efficacious in managing total costs and expenses. However, the SME destroys economic value added (EVA) in four years. In the six-year period, the medium-sized company that generates a negative added market value, being at a disadvantage with the small company that achieves a positive value for this period. The company in the sector is more effective than the SME and creates value every year.

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Section: Free Cash Flow Theorymentioning

confidence: 99%

Capital Structure, Financial Capacity and Financial Performance of Small and Medium Enterprises in the Buganda Region, Uganda

Mugisha¹,

Omagwa²,

Kilika³

2022

jmv

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“…It has also affected performance (Risman, A., & Parwoto, A. S. S., 2021). The free cash flow hypothesis is the basis on which agency theory is Zurigat, Sartawi & Aleassa (2014) presented their argument on the logic of agency theory. Poor management has a direct effect on the well-being of the company.…”

Section: Introductionmentioning

confidence: 99%

Impact of Dividend and Leverage on Free Cash Flow in The Context of Agency Problem: Evidence from Pakistan

Chauhan¹,

Rao²

2022

Gurukul Business Review

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Objective: The purpose of this paper is to study the agency theory problem. To test the free cash flow (FCF) hypothesis to reduce the agency theory in firms operating in Pakistan. Further, this paper gives an overview of financial reporting conditions and corporate governance practices. Design/methodology/approach: This study has applied panel regression on data. It is collected from 2010 to 2017 from companies listed in the Pakistan stock exchange. This paper used the Fixed and Random effect model to test the relationship. The current study collected data from 119 companies from the stock exchange of Pakistan. Findings: We find that the free cash flow hypothesis exists in firms listed in the Pakistan stock exchange. Debt is the more proper approach to reduce the free cash flows in management control than the dividend. Furthermore, we find that capital expenditure adds to the value of the firms. Originality/value: This study is the first analysis of the agency theory problem to measure the effectiveness of the free cash flow (FCF) hypothesis in the context of public sector nonfinancial firms in the Pakistan Stock exchange. The study contributes to the literature of corporate laws, agency theory, and the dividend payment patterns adopted by firms.

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“…Managers of listed companies on ASE have only a 4 per cent investment in these companies, which makes agency conflicts more severe. Also, Jordan adopted financial liberalization in 1990, which, consequently, has led to a boost in the flexibility given to managers in controlling the cash holding (Zurigat et al, 2014). Alnawaiseh et al (2017) indicated that many listed companies have free cash flow, but that only 15 per cent of Jordanian companies employed free cash flow efficiently.…”

Section: Introductionmentioning

confidence: 99%

Surplus Free Cash Flow, Stock Market Segmentations and Earnings Management: The Moderating Role of Independent Audit Committee

Toumeh

Yahya

Amran

2020

Global Business Review

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Management engages in earnings manipulation for different reasons. This article argues that low-growth firms with high free cash flow will opt for income-increasing earnings management in order to obscure the low profits derived from their investments in negative net present value (NPV) projects. On the other hand, we argue that the listed companies might be interested in being listed in the first market due to its privileges and to preserve the competitiveness, through managing their earnings upwardly, so that they can satisfy the condition of achieving a particular earnings limit. This article should advance the body of earnings management literature in the Jordanian context by examining the effect of the moderating role of an independent audit committee (IAC) in the association between surplus free cash flow (SFCF) and income-increasing discretionary accruals (DAC). Further, this is the initial empirical attempt to investigate the moderation effect of IAC between stock market segmentations (SMS) and positive DAC. The results of this current study offer original and beneficial information for the Jordanian government and other countries with a similar institutional environment because the study promotes the application of applying IAC as an efficient tool to constrain management behaviour towards manipulation of the accruals. On top of that, this research offers information concerning the prevailing situation of earnings management practices and corporate governance in Jordan, in which shareholders, local and international investors, policymakers, regulators and academic researchers are interested. Finally, panel data analyses and various statistical techniques are employed to derive conclusions.

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Empirical Investigation of Free Cash Flow Hypothesis: Evidence from Jordanian Capital Market

Cited by 4 publications

References 39 publications

Capital Structure, Financial Capacity and Financial Performance of Small and Medium Enterprises in the Buganda Region, Uganda

Capital Structure, Financial Capacity and Financial Performance of Small and Medium Enterprises in the Buganda Region, Uganda

Impact of Dividend and Leverage on Free Cash Flow in The Context of Agency Problem: Evidence from Pakistan

Surplus Free Cash Flow, Stock Market Segmentations and Earnings Management: The Moderating Role of Independent Audit Committee

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