Abstract
This study investigated the effect of free cash flow-based agency costs on dividends in a sample of 73 companies listed on the Tehran Stock Exchange during a period of five years from 2007 to 2011. The free cash flow-based agency costs were measured through several metrics including free cash flow, financial leverage, corporate growth, profitability, firm size and stock risk. The data were analyzed through multiple regression and panel method. The results of the statistical analysis concerning the research hypotheses in SPSS and E-VIEWS demonstrated that free cash flow and dividend corporate growth had an inverse effect on dividend. Moreover, the results suggested that financial leverage, profitability, firm size and stock risk left direct effects on dividend. DOI: 10.5901/mjss.2016.v7n4S2p131
Highlights
One of the financial reports made available to investors is cash flow statement
This study sought to understand the impact of free cash flow-based agency costs and dividend in companies listed on Tehran Stock Exchange
Setayesh and Zolfaghari (2011) investigated the effect of free cash flows and investment opportunities on debt/dividend ratios in companies listed on Tehran Stock Exchange
Summary
One of the financial reports made available to investors is cash flow statement. Cash flow statement refers to a data transfer tool for assessing the ability to repay debt, liquidity and financial flexibility. It should be noted that the old accounting criteria such as earnings per share and return on assets alone cannot represent the firm’s performance These measures should rather be applied in addition to free cash flows. According to Jensen (1986), if managers are looking to grow their companies in any way possible, they invest the free cash flows in projects with negative net present value, followed by earnings management to eliminate losses from investment profits. In such projects, the cash funds are distributed between shareholders for the benefit of shareholders and improves the company’s situation.
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