Interactions between free cash flow, debt policy and structure of governance: Three stage least square simultaneous model approach: evidence from the Tunisian stock exchange

Moussa, F. Ben; Chichti, Jameleddine

doi:10.22495/cocv9i2art2

Cited by 6 publications

(6 citation statements)

References 61 publications

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“…The result also shows that ownership (1 if owned by state and 0 otherwise) is significant at explaining ROA and ROE (P value: 0.000 in both cases). This significant negative result is in agreement with the agency theory argument that managers of state owned firms are inefficient due to the lack of market monitoring [37]. It may also be because managers of state owned companies may not face as much pressure from the environment as managers of private companies.…”

Section: Other Variablessupporting

confidence: 83%

“…It may also express that highly profitable firms have less need of external funds. This significant negative relationship between debt ratio and firm performance does not support the agency theory and [12]; [36]; [3] and [37] argument that debt disciplines management (by inducing monitoring by lenders) and hence improves performance. But the inverse relationship between debt ratio and firm performance is similar with the finding of [50] conducted on UAE firms using cross-sectional analysis.…”

Section: Debt Policymentioning

confidence: 72%

“…The agency literature suggests that debt may be useful in reducing agency conflicts [36] and agency costs of free cash flow ( [37] and [3]) by reducing the cash flow available for spending at the discretion of managers [38]. [39], [3] and [37] also suggests that leverage which serves as a monitoring device has significant impact to mitigate agency problem between owner and principal. So, debt and equity are treated not mainly as alternative financial instruments, but rather as alternative governance structures [40].…”

Section: Debt Policymentioning

confidence: 99%

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Corporate Governance Mechanisms and Firm Performance: The Case of Ethiopian Insurance Industry

Demeke¹

2016

JIM

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In this study the effects of board characteristics (specifically proportion of outsiders in the board, board size, CEO-Chairman duality, and board meeting frequency), debt policy, and dividend policy are investigated in the Ethiopian context using two theories of corporate governance, which are agency theory and stewardship theory. Financial performance is measured using return on assets and return on equity. The study used panel data and Pooled OLS regression to analyze the relationship between corporate governance mechanisms and firm performance using a data set of 8 insurance companies of Ethiopia over the period 2008-2012. The results show that proportion of outside directors, board size, debt ratio, and ownership have a significant negative effect on performance of insurance companies. However, boards meeting frequency, firm size and firm age, are identified to have a significant positive impact on firm performance. Dividend policy have no effect on firm performance while the effect of CEO-Chairman Duality remains untested since it is not practiced in any one of the insurance companies.

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Section: Other Variablessupporting

confidence: 83%

Section: Debt Policymentioning

confidence: 72%

Section: Debt Policymentioning

confidence: 99%

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Corporate Governance Mechanisms and Firm Performance: The Case of Ethiopian Insurance Industry

Demeke¹

2016

JIM

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“…DeAngelo and DeAngelo (2000) and La Porta et al (2000) also reached similar conclusions, which were also confirmed by Aigner et al (1977). The thesis that external financing or dividends reduce free cash flow available to managers has been empirically supported by Lang, Ofek, and Stulz (1996), Li and Cui (2003), Byrd (2010), Khan, Kaleem, and Nazir (2012), Fatma andChichti (2011) andZhang (2009) and by Kadioglu and Yilmaz (2017) in the Turkish context. Titman et al (2003), Fairfield et al (2003) and Dechow et al (2008) put forth that in the case of free cash flow in the control of managers or overinvestment with these funds, company performance is negatively affected.…”

Section: Literature Reviewmentioning

confidence: 55%

Testing the Relationship between Free Cash Flow and Company Performance in Borsa Istanbul

Kadioglu¹,

Kılıç

Yilmaz³

2017

IBR

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This study tests whether free cash flow affects the performance of firms in the context of the free cash flow hypothesis. The study applies a panel regression method to a data set consisting of 2,175 observations belonging to 370 companies listed in Borsa Istanbul during the period 2009-2015. A significant, negative relationship is found between free cash flow and firm performance measured by Tobin's Q ratio. Greater free cash flow in the hands of managers leads to the lower performance and, conversely, less free cash flow in the hands of managers leads to higher performance. The results also confirm that leverage and dividend payments have a positive effect on performance. Thus, the results support the free cash flow hypothesis for Turkey.

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“…Debt provides shielding against free cash flow agency costs by reducing free cash flow and hindering management to maximize its interests. The above mentioned by previous research conducted by Afza and Mirza [26], Fatma and Chichti [4], Zhang [28], Utami and Inanga [25]. H2 = There is influence of Free Cash Flow to Leverage…”

Section: B Effect Of Free Cash Flow On Leveragementioning

confidence: 84%

Leverage Capability in Controlling Free Cash Flow to Improve Financial Performance

Tristiarini¹,

Pratiwi²

2018

Proceedings of the 1st Economics and Business International Conference 2017 (EBIC 2017)

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Free Cash Flow, in general, being a problem for the company if it is not good in controlling. The manager can use free cash flow for actions that can harm the company. Leverage is a cost that can control the usage of free cash flow for the company's activity, which in turn can improve financial performance. The purpose of this study is to examine the role of leverage in mediating the relationship between free cash flow and financial performance. The research variable consists of Free Cash Flow as the independent variable, the Leverage as the mediator and Financial Performance as the dependent variable. The population of this research is manufacturing companies listed on the Indonesia Stock Exchange periods 2011-2015. The sampling method is purposive sampling with criteria, and the samples that meet the criterion are 70 manufacturing companies. The research model is used Warp PLS 3.0. The results show that free cash flow has an effect on financial performance, and Leverage mediates the relationships between free cash flow and financial performance. This research contribute a novelty of science in the field of management accounting, and has positive implications for companies in determining control strategies of free cash flow through the leverage could improve the financial performance.

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Interactions between free cash flow, debt policy and structure of governance: Three stage least square simultaneous model approach: evidence from the Tunisian stock exchange

Cited by 6 publications

References 61 publications

Corporate Governance Mechanisms and Firm Performance: The Case of Ethiopian Insurance Industry

Corporate Governance Mechanisms and Firm Performance: The Case of Ethiopian Insurance Industry

Testing the Relationship between Free Cash Flow and Company Performance in Borsa Istanbul

Leverage Capability in Controlling Free Cash Flow to Improve Financial Performance

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