Free Cash Flow Research Articles

Dividend taxes and investment efficiency: Evidence from the 2003 U.S. personal taxation reform

We examine the effect of a large dividend tax cut on corporate investment efficiency by exploiting the 2003 personal taxation reform in the U.S. as a quasi-natural experiment. Using a difference-in-differences approach based on the probability that a firm’s marginal investor was an individual investor, we show that the 2003 dividend tax cut significantly improved the investment efficiency of U.S. listed firms. However, we find no evidence that the dividend tax cut increased the level of investment of U.S. listed firms. Further, we show that the tax cut increased investment efficiency by mitigating agency problems associated with the excessive free cash flows of overinvesting firms and by relaxing the financial constraints of underinvesting firms.

Dual-class stock structure and firm investment

Dual-class stock structure helps insiders gain control through different voting rights, but also exacerbates the principal-agent conflict. The separation of control rights and cash flow rights enhances managerial opportunistic behavior. We find that dual-class stock structure aggravates the over-investment behavior of listed firms. The impact of free cash flow on over-investment is more severe in dual class firms than in single-class firms. Paying cash dividends reduces the effects of dual-class stock structure, and separation of control and cash flow rights on overinvestment. Regulators need to strengthen the supervision to restrict managerial opportunistic behavior in firms with dual-class share structure.

Determinant Analysis of Company Debt Policy with Vector Error Correction Model Approach

Purpose- This study uses a VECM model that aims to see the short-run and long-term effects of managerial ownership, sales growth, free cash flow, and asset structure against debt policy. Vector Error Correction Model (VECM) is a model that can be used for time series data that is not stationary but has a cointegration relationship where in the model included stationary exogenous variables as additional regressors.
 Research Method- The sample used in this research is quantitative data with a purposive sampling technique. Based on the criteria, the number of samples collected is 32 samples in the period 2013-2021.The data analysis techniques in this study use Vector Error Correlation Model (VECM) analysis, several stages that researchers must go through before determining the right model, namely data stationarity test, optimal lag length test, co-integration test, VAR model stability test, granger causality analysis, VAR/VECM empirical model, Impulse Response Function analysis and Variance Decomposition analysis.
 Findings- The results of the analysis show that in the short term only sales growth and asset structure have a significant influence on debt policy. Meanwhile, in the long-term free cash flow, asset structure and sales growth have a significant influence on debt policy, while managerial ownership has an insignificant effect on debt policy.
 Implication- For the company should reduce the proportion of funding from debt in the implementation of its operations so as to reduce financial distress, because funding from corporate debt causes financial distress and agency costs greater than tax savings from debt interest expense, as a result of which the company is very vulnerable to economic turmoil. For creditors who provide sources of debt funding, pay more attention to aspects of the company's asset structure to be used as collateral for debt, because the company usually uses loan funds for high-risk projects. For investors should take deeper considerations to invest in companies that have large free cash flow because companies that have large free cash flow tend to show good cash flow for the future.

Pengaruh GCG, Free Cash Flow, Dan Ownership Structure Pada Perusahaan Manufaktur

This study aims to test empirically the influence of Board Size, Board Independence, Board Meetings, Free Cash Flow, Ownership Concentration, and Managerial Ownership on Corporate Performance in manufacturing companies listed on the Indonesia Stock Exchange in the 2016-2019 period. The sample was selected by purposive sampling method and the data used were 71 companies. The test method used in this study is linear regression using the EViews 10 software. Based on the results of the research that has been done, it can be concluded that Free Cash Flow has a positive effect on Corporate Performance, while Board Size, Board independence, Board Meetings, Ownership Concentration and Managerial Ownership have no influence on Corporate Performance. The implication of this research is that large amounts of free cash flow can help improve company performance.

Monitoring Financial Risk and Earnings Manipulation Across Malaysia, Thailand and Indonesia

This paper discusses the significance of mean difference in free cash flow, leverage, as well financial distress between Malaysia, Thailand, and Indonesia. It involved 582 samples from Bursa Malaysia, Stock Exchange of Thailand, and Indonesia Stock Exchange on an annual basis commencing from 2015 to 2017. The purpose of this study was to determine whether the significance of variables towards earnings manipulations (by proxy of discretionary accruals) within the countries can be used to propose a new regulation that focuses more towards reducing the earning manipulation within the firm, as results might be helpful for firms in the near future. Moreover, the study aimed to identify which firm within these three countries wholly manipulated earnings more than the other. The significance difference of the of earning manipulation for the 3 countries was investigated. The descriptive statistics tells that Indonesia had the highest debt compared to two other countries. Results from one-way ANOVA, which was used to determine if there was a significant difference for free cash flow, leverage, and financial distress respectively, across these countries, showed that there were mean significant differences for all three variables. Keywords: earnings manipulation, financial risk, Malaysia, Indonesia, Thailand

Key Indicators of Financial Ratios on Value of Food and Beverage Companies in Indonesia

The country earns substantial foreign exchange from the food and beverage sector, the primary sector for people's needs. This study aims to analyze the effect of debt to equity ratio (DER), return on assets (ROA), free cash flow (FCF), and growth (GRW). This study uses five companies in the food and beverage sector from 2015 to 2019 with quarterly financial reports. The study results using the fixed-effect model prove that all the variables studied significantly affect the price to book value. Companies need to maintain and improve their business performance and financial performance, then report them following the principles and standards that apply to each period's financial statements to attract investors.

Free Cash Flows and Price Momentum

This study investigates the role of free cash flows and (cross-sectional and time-series) price momentum in predicting future stock returns. Past returns and free cash flows each positively predict future stock returns after controlling for the other, suggesting that cash flows and momentum both contain valuable and distinctive information about future stock returns. A strategy of buying past winners with high free cash flows and shorting past losers with low free cash flows significantly outperforms the traditional momentum trading strategy. The enhanced performance is not sensitive to investor sentiment, time variations, or transaction costs. Further analysis shows that the incremental cash flow effects are largely attributable to net distributions to equity/debt holders. Overall, our findings shed light on the role of corporate fundamentals in technical trading strategies.

Monetary valuation of a technological patent under transfer alternatives. Manufacturer company case of products for the electrical and telecommunications sector in Medellín-Colombia

The valuation of a technology or invention patent is an exercise of good sense based on referents of competitive intelligence and experts. The purpose of this article is to establish the monetary value of the invention patent according to the technology situation and under possible commercialization scenarios. First, the conditions and potential of the patent are evaluated through expert analysis, the expectations of the owners of the invention patent and of potential clients or allies. Second, the patent is valued by discounted free cash flow (FCLD) and according to possible commercialization alternatives. The results show that there is an increase in the added value of 2.7 times for the company, in the alternative corresponding to the licensing of energy distributors in the national territory, compared to the alternative of only producing internally and making its own distribution.

FIRM’S ATTRIBUTES AND SUSTAINABILITY REPORTING OF LISTED NON-FINANCIAL FIRMS NIGERIA

Globally delivering prosperity is becoming a challenge, demands from government and civil society for business and finance action on sustainability issues are growing exponentially. The study looked into the effect of firm’s attributes on sustainability reporting of non-financial firms listed on the Nigerian Stock Exchange (NSE) between 2006-2020. The study population comprised of (113) listed non-financial firms. The sample size was made up of (76) listed non-financial firms out of the total population. Taro Yamane technique was employed in the determination of the sample size. Secondary data was sourced from the audited financial reports of sample firms. Panel data least square multiple regression was employed for the analysis. The outcomes show that profitability, firm size, and liquidity maintain positive and statistically significant relationships with STR (β= 0.0421, p-value = 0.003, β= 0.1241, p-value = 0.033, β= 0.0674, p-value = 0.022) and assets tangibility has a negative and statistically significant relationship with STR (β= -0.4533, p-value = 0.021) while age of the business has negative but not significant effect on STR (β = -0.0060, p-value = 0.610). The findings also show that growth rate, financial leverage, free cash flow and business risk have positive but no significant relationships with STR of the sampled companies (β= 0.0564, p-value =0.335, β=0.2231, p-value = 0.432, β=0.0015, p-value= 0.324, β= 0.00432, p-value = 0.325). The study recommends that profitability, firm size, liquidity and asset tangibility are critical firm’s attributes to consider when the management of publicly firms in Nigeria makes a sustainability reporting.

Faktor Determinan Stock Buyback (Studi Perusahaan di Pasar Modal Indonesia Periode 2012-2020)

The purpose of this study is to determine whether the influence of undervaluation and free cash flow has an influence on the stock repurchase policy. This study uses companies that carry out stock buybacks from 2012-2020 listed on the Indonesia Stock Exchange as the population in this study. The method of determining the sample using purposive sampling technique. The number of research samples is 55 companies that repurchase shares with an 8-year observation period, resulting in 83 observational data. The hypothesis in this study was tested using multiple linear regression analysis techniques. The results of the analysis show that the undervaluation proxied by the Market to Book Ratio has a positive effect on the stock buyback policy. Meanwhile, free cash flow has a negative effect on the stock repurchase policy.
 Keywords: Stock Buyback; Undervaluation; Free Cash Flow.

ANALYSIS OF THE FINANCIAL PERFORMANCE OF FOOD AND BEVERAGE COMPANIES BEFORE AND DURING THE COVID-19 PANDEMIC IN INDONESIA

The food and beverage sector is considered to have the strongest resilience in the Covid-19 pandemic, because its existence is related to basic human needs. So it is very interesting to identify the factors that affect the financial performance of companies in this sector. A total of 18 food and beverage sector companies listed on the Indonesia Stock Exchange during the 2018-2020 period were taken by purposive sampling. The data were analyzed using multiple regression analysis, starting with testing the classical assumptions of the regression model. The results of the analysis show that simultaneously, size, free cash flow, debt policy, liquidity, growth and asset management have a significant effect on financial performance. Partially, free cash flow and asset management have a significant effect on financial performance, while size, debt liquidity and growth policies partially do not significantly affect the company's financial performance.

Do dividends signal safety? Evidence from China

Our paper examines whether dividends convey information about future cash-flow volatility in the Chinese stock markets. We observe that dividend changes are followed by cash-flow-volatility changes in the opposite direction. Taking advantage of the unique context of China, we show, in both the two-way sorting analysis and the regression analysis, that the strong relation between changes in dividend and cash-flow volatility is robust after controlling for potential confounders, including firm-level financial market frictions, macroeconomic and market conditions, and government intervention in firms' decision-making, and holds after we control for endogeneity concerns. Furthermore, we perform the theoretic mechanism tests of the relation and present supporting evidence on the signaling theory under the setting of asymmetric information, instead of the free cash flow theory based on the assumption of agency conflict. This study enriches our understanding of the source and nature of cash-flow information contained in dividends.

Determinants of corporate cash holdings: An application of a robust variable selection technique

US firm cash holdings have become increasingly concentrated over time withering shareholder returns and heightening agency problems associated with free cash flows. We investigate the determinants of corporate cash holdings using a robust regression technique (the Least Absolute Deviation Regression, LAD) and a state-of-the-art variable selection procedure (The Least Absolute Shrinkage and Selection Operator, LASSO). This framework identifies a sparse model which is also resistant to outliers. We obtain several results. First, the median absolute errors of the LAD-LASSOselected variables is significantly lower than the corresponding values of the basic determinants commonly used in the literature, in both in-sample and out-of-sample schemes. Second, financial leverage is a key determinant of cash holdings, indicating that cash and debt policies are tightly related (debt-cash substitutability). Third, none of the corporate governance proxies identified in the literature as a corporate cash holding determinant (managerial ownership, board independence, CEO duality, board size, and institutional ownership) is selected by the LAD-LASSO method, challenging the potency of governance mechanism in corporate cash management. Fourth, the financial crisis of 2008 dramatically changed the selected predictors for cash holdings as well as requiring additional predictors for the period, though their number was heavily curtailed after the period. Fifth, the money demand function is different between financially constrained and unconstrained firms, in both combination and number of influential variables. Finally, prediction error of the LAD-LASSO-based cash model is smaller than that of the principal components regression in both in-sample and out-ofsample prediction. Our findings are of importance to corporate cash managers, shareholders, monetary policy authorities, and scholars on the issues such as adjustment speed of cash holdings and valuation of excess cash reserves, which are based on the fitted values from the cash model.

ANALISIS PENGARUH KAPABILITAS MANAJERIAL TERHADAP PENINGKATAN KUALITAS LABA DAN NILAI PERUSAHAAN (Studi Empiris Pada Hotel The Ritz Carlton Nusa Dua – Bali)

This study aims to analyze the effect of managerial capability on improving earnings quality and firm value at The Ritz-Carlton Hotel, Nusa Dua – Bali. The variables used in this study are firm efficiency, free cash flow, firm value. The sample of this research was carried out by taking all the company's quarterly financial report data published by the Ritz-Carlton Hotel during the 2015-2019 period. Data analysis techniques used in this study: (1) multiple linear regression analysis with control variables, (2) moderated multiple linear regression analysis. The results of this study indicate that managerial capability has a significant effect on earnings quality. Managerial capability has a significant effect on firm value. Earnings quality has a significant effect on firm value. Earnings quality moderates the effect of managerial capability on firm value.

Prediction of Enterprise Free Cash Flow Based on a Backpropagation Neural Network Model of the Improved Genetic Algorithm

Enterprises with good long-term free cash flow data often have better prospects than enterprises with good net profit but unstable free cash flow for a long time, and free cash flow prediction is an important part of evaluating the enterprise value of an enterprise. By determining the fitness function, algorithm formula, population, and Backpropagation (BP) neural network design, a BP neural network model based on the improved genetic algorithm is proposed to predict the free cash flow of enterprises. Taking the free cash flow data of G Company from 1 January 2019 to 30 June 2019 as an example, after evaluating the most neurons and the best population, analyzing the relative errors and comparing the average relative errors of different prediction models, the results show that the model has better prediction accuracy. Cash flow forecasting can effectively improve decision making on productions and operations and the investment financing of enterprises, and has important practical significance for studying enterprise fund management.

Honeywell delivers strong 4Q 2021 results, full year 2021 operating cash flow of $6.0 bn and free cash flow of $5.7 bn, above high end of initial guidance; issues 2022 guidance: Performance Materials and Technologies segment

Honeywell delivers strong 4Q 2021 results, full year 2021 operating cash flow of $6.0 bn and free cash flow of $5.7 bn, above high end of initial guidance; issues 2022 guidance: Performance Materials and Technologies segment

Is cash flow growth helping stock performance during the COVID-19 outbreak? Evidence from Indonesia

The COVID-19 pandemic is an unexpected event that causes stock market investors to panic so that their value drops drastically. Operating cash flow and free cash flow are indicators of a company’s financial statements that are used as a reference for investors’ decision making in the stock market. A firm’s cash flows reflect real changes in the firm’s value for money. Cash flow growth can provide information on how well the firm’s performance is in generating incremental cash inflows that can increase firm value. This study aims to explore the relationship between cash flow growth before the COVID-19 pandemic and after the COVID-19 outbreak on stock price performance. This study uses the OLS regression method with a total sample of 426 companies in the Indonesian capital market in the period March 2, 2020 to March 2, 2021. The results show that cash flow growth from operations and free cash flow growth had no significant effect on stock return after COVID-19 outbreaks in years 2020 to 2021. Sales growth, market capitalization and stock return before the COVID-19 outbreak from 2019 to 2020 had a significant negative correlation with the post COVID-19 outbreak stock return. Then, sectors whose stock performance is positively correlated after the COVID-19 outbreak are basic industry, chemicals, miscellaneous industry and infrastructure. This shows that the economic crisis caused by COVID-19 is an anomaly in the stock market. Therefore, cash flow is not relevant information for investors in predicting a company’s performance during the COVID-19 pandemic crisis.

Implementation of Capm, Fama-French Three-Factor, and Five-Factor in Indonesia Stock Exchange and Cement Industry Sector

Weighting Average Cost of Capital (WACC) plays a critical role as a discounting factor of the corporate valuation process's estimated future free cash flow by highly influencing the valuation process. It consists of three components, namely cost of debt, cost of equity, and proportion of capital structure. Costs of debt and capital structure are easily calculated due to data stability and less volatility. Meanwhile, the cost of equity is difficult to determine due to assumption, the period taken, the method applied, and complexity. Many assets pricing methods are used to determine the required rate of return in equity, namely CAPM, Fama French Three-Factor (FF3F), and Fama French Five-Factor (FF5F). These three asset pricing models are used to determine the models with strong explanatory factors on equity return to portfolios developed from sorting FF5F factors and individual equity of four cement companies publicly listed in the Indonesia Stock Exchange (IDX).

The Impact of ESG Performance on Business Performance before and after the COVID-19－Taking the Chinese Listed Companies as a Sample

Under the influence of the COVID-19 in 2020, almost all industries have been hit unprecedentedly. The overall economy is on a downward trend, making economic development a high degree of uncertainty. Therefore, this paper takes the Chinese A-share listed companies that have been evaluated based on the Environmental, Social and Governance (ESG) performance in the three years from 2019 to 2021 as samples and analyzes the impact of ESG performance on business performance before and after the COVID-19 through the empirical method of the OLS and quantile regression. The findings of this study are summarized as follows: 1) The performance of ESG during the pandemic played a significant role in resisting its impact on revenue and earnings per share (EPS). 2) The performance of ESG during the pandemic has a negative and significant relationship with changes in the company’s free cash flow. However, if the ESG performance is maintained above the level of the previous period and the social responsibility report is actively disclosed by the GRI reporting guidelines, it will have a positive and significant impact on the changes in the company’s free cash flow. 3) The performance of ESG during the pandemic has no obvious effect on the company’s performance recovery after the pandemic, including the increase in revenue and EPS, and the increase in free cash flow. Based on the research findings, this paper also suggests that companies should continuously and progressively implement corporate social responsibility (CSR) and that the state should further improve the requirements for CSR.

Investigating the Impact of Debt and Free Cash Flows on Tax Avoidance with Emphasis on the Role of Institutional Ownership

Investigating the Impact of Debt and Free Cash Flows on Tax Avoidance with Emphasis on the Role of Institutional Ownership