A study on agency costs: The relationship of the free cash flow hypothesis to sales growth and firm performance

Date of Publication

2013

Document Type

Bachelor's Thesis

Degree Name

Bachelor of Science in Accountancy

Subject Categories

Accounting

College

Ramon V. Del Rosario College of Business

Department/Unit

Accountancy

Thesis Adviser

Joy Lynn Legaspi

Defense Panel Chair

Herminigilda E. Salendrez

Defense Panel Member

Merlinda Bucad

Cynthia Cudia

Joy Lynn Legaspi

Abstract/Summary

The paper tests the agency argument if free cash flow contributes to higher sales growth. It also tests if firm performance is negatively affected by free cash flow. And it finally test if governance controls help mitigate such effects to the performance in relation to its sales growth. The related literature illustrates the brief history of agency theory and that free cash flow is one of the quantifiable amounts available for agency cost. Deriving samples from manufacturing firms in Europe, the data was analyzed using a panel data regression under the random effects model. Contrary to agency theory, free cash flow does not increase sales growth. Performance however is consistent with the theory and has a negative correlation with free cash flow. Results for governance controls yielded only one significant result ou of possible three for performance and none for sales growth. Owner-controlled firms provide a negative effect on performance for firms with free cash flow.

Abstract Format

html

Language

English

Format

Print

Accession Number

TU18223

Shelf Location

Archives, The Learning Commons, 12F, Henry Sy Sr. Hall

Physical Description

201, 1 unnumbered leaves ; 28 cm.

Keywords

Cash flow--Philippines; Stock ownership

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