Impact of Financial Leverage on Agency cost of Free Cash Flow

Davoud AsadiLari, Hamid Reza Vakilifard, Mehdi Dasineh

Abstract


Investors and creditors tend to invest in firms that have high free cash flow, because is one of the tools evaluation of debt repayment and determination financial flexibility, is index of free cash flow .But  the important problem  about  free  cash  flow  is considered,  the  funds  are  agency  problems . In this research, a main hypothesis and sub-hypothesis, by selecting the 74 firm from  between firms listed on the Tehran Stock Exchange for a period of 5 years 2008-2013, the Panel method have been tested. The results show between agency costs of free cash flow and financial leverage, debt to equity Ratio and long-term debt ratio there was a significant negative relationship. Findings from the research side also show there was a significant positive relationship between agency costs of free cash flow with profitability, firm size, Q-Tobin ratio and firm ownership management.

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