Investigating the Relationship between Optimal Distribution of Dividends and Investment Efficiency According to the Mediating Role of Financial Constraints and Agency Costs of Free Cash Flow
Investigating the Relationship between Optimal Distribution of Dividends and Investment Efficiency According to the Mediating Role of Financial Constraints and Agency Costs of Free Cash Flow
Subject Areas : Financial Knowledge of Securities Analysis
Ebrahim Solati Khosroshahi
1
,
Younes Badavar Nahandi
2
,
Houshang Taghizadeh
3
1 - Ph.D. Candidate, Department of Accounting, Tabriz Branch, Islamic Azad University, Tabriz, Iran
2 - Associate Prof., Department of Accounting, Tabriz Branch, Islamic Azad University, Tabriz, Iran (Corresponding Author).
3 - Prof., Department of Management, Tabriz Branch, Islamic Azad University, Tabriz, Iran
Keywords: Agency cost of free cash flow, Dividends, Financial constraints, Investment efficiency.,
Abstract :
This study aims to investigate the effect of optimal dividend distribution on investment efficiency in Tehran Stock Exchange during 1388-1400 with regard to the mediating role of financial constraints and agency costs of free cash flow. In order to estimate the main investment efficiency model, generalized method of moments (GMM) was applied. Moreover, in order to examine the mediating role of financial constraints and agency costs of free cash flow, first a discrete model for investigating the effect of optimal dividend distribution on the mediating variable was specified using Probit econometric method, and then the effect of the mediating variable on investment efficiency was evaluated by adding it to the main model, and then, by calculating Sobel test statistics, the significance of the mediating role of financial constraints and agency costs of free cash flow was investigated. Based on the results, the optimal distribution of dividends has a positive and significant relationship with investment efficiency. Also, the results of Sobel tests indicate that both financial constraints and agency costs have significant mediating roles in the relationship between the optimal distribution of dividends and agency costs of free cash flow. Accordingly, it is suggested that the managers pay attention to the financial constraints and agency cost of free cash flow in their decisions in order to avoid unexpected results about investment efficiency. Also, in order to increase investment efficiency, managers should adopt a suitable dividend distribution policy.
