Free Cash Flow, Institutional Ownership and Long-Term Performance

Subject Areas : Financial Accounting

Yasser  Rezaei Pitenoei ¹ (Department of Accounting, University of Guilan, Rasht, Iran.)
Mohammad  Gholamrezapoor ² (Department of Accounting, University of Guilan, Rasht, Iran.)

Received: 2019-04-07 Accepted : 2019-04-19 Published : 2019-05-01

Keywords: long-term Performance, Institutional Ownership, Free Cash Flow,

Abstract :

Performance appraisal is a process which help shareholders make informed and optimal investment decisions. In recent decades, a long stream of research has devoted particular attention to the importance and impact of financial decisions on firm performance and firm value. The present study thus is primarily concerned with investigating the association between free cash flow and institutional ownership and long-term performance of the firms listed on the Tehran Stock Exchange over the period of 2012-2016. Moreover, firm size, financial leverage and sale grows serve as the control variables of the research. A number of 89 firms listed on the Tehran Stock Exchange were selected, and then the research hypotheses were tested using multivariate regression model based on panel data. The results reveal that firm long-term performance is not significantly correlated with free cash flow, yet it has a significant relationship with institutional ownership.

References:

[1]  Aghaie, M., Kazempour, M., Mansourlakoraj, R., The Effect of Free Cash Flow and Capital Structure on Different Criteria for Evaluating the Performance of the Material Industry and Pharmaceutical Products Companies Listed on the Tehran Stock Exchange, Journal of Health Accounting, 2015, 3(2), P.1-15.

[2]  Asgarnezhad Nouri, B., Emkani, P., The Effect of Risk Management on Financial Performance of the Companies Listed in Tehran Stock Exchange: The Mediating Role of Intellectual Capital and Financial Leverage, Asset Management and Financing, 2017, 5(2), P. 93-112. Doi:10.22108/amf.2017.21575

[3] Baradaran Hassanzadeh, R., Hossein babaei, G., and Faryadi, A., The Impact of Some Corporate Governance Mechanisms on the Auditor’s Report Content, Journal of Accounting and Auditing Review, 2016, 23(2), P. 155-172. Doi: 10.22059/acctgrev.2016.58466

[4] Bushee, B.J., The Influence of Institutional Investors On Myopic R& D Investment Behavior", Accounting Review, 1998, 73, P. 305-.433.

[5] Eforis, C., Uang, J., Corporate governance and firm performance: The moderating effect of state ownership, Proceeding of 4th Global Business and Finance Research Conference, 2015, P. 1-12. 

[6]  Forughi, D., Matin Nezhad, R., Effect of Characteristics of Firms on Calculated Expected Return of Composite Implied Cost of Capital (CICC), Journal of Accounting Advancec, 2014, 6(1), P. 91-114.Doi:10 .22099/jaa.2014.2258

[7]  Fosu, S., Capital Structure Product Market Competition and Firm Performance: Evidence from South Africa, The Quarterly Review of Economics and Finance, 2013, 53(13), P. 140-151.Doi:10.1016/j.qref. 2013.02.004

[8]  Gregory, A., Wang, W. H., Cash acquirers: Can free cash flow, debt and institutional ownership explain long-run performance?, Review of Behavioral Finance, 2013, 5(1), P. 35-57. Doi:10.2139/ssrn.1 793094

[9] Gillan, S.G., Starks., L.T., A Survey of Shareholder Activism: Motivation and Emprical Evidence, Contemp Finance Dig, 1998, 2, P. 10-38.

[10] Hasas Yeganeg, Y., Moradi, M., Eskandar, H., The Relationship between Institutional Investors and Corporate Value, Journal of Accounting and Auditing Review, 2008, 15(3), P. 107-122.

[11] Hashemi, S. A., Bekrani, K., The effects of ownership structure and corporate governance on the capital structure decisions of listed companies in Tehran stock exchange, Quarterly Financial Accounting Journal, 2011, 3(9), P, 1-18.

[12] Hintosova, A., Kubikova, Z., The effect of the degree of foreign ownership on firms performance, Review of Econimic Perspectives, 2016, 16(1), P. 29-43. Doi:10.1515/revecp-2016-0003

[13] Kazemi, H., Mohammad Nezhad, A., The Investigation of the Relation between Institutional Ownership with Information Asymmetry and Financial Performance, Accounting Empirical Research of Financial, 2012, 1(2), P. 110-128.

[14] Khodadadi, V., Veisi, S., Explaining the Relationship Between Capital Structure, Agency Problem and Performance, Accounting Research, 2015, 5(3), 133-159. Doi: 10.22051/ijar.2016.2316

[15] Kim, O. Disagreements among Shareholders over a Firm's Disclosure Policy, Journal Finance, 1993, 2, P. 747-760. Doi:10.1111/j.1540-6261.1993.tb04737.x

[16] Lachheb , A.,Slim ,C., The Impact of Free Cash Flow and Agency Costs on Firm Performance,  International Journal of Management and Applied Science (IJMAS), 2017, 3(7), P. 94-101. Doi:10. 1142/S234576 8614500275

[17] Lehn, K., Poulsen, A., Free Cash Flow and Stockholder Gains in Going Private Transactions, Journal of Finance, 1989, 4(3), P. 771-787. Doi:10.1111/j.1540-6261.1989.tb04390.x

[18] Lin, Y. R., Fu, X. M., Does institutional ownership influence firm performance? Evidence from China, International Review of Economics & Finance, 2017, 49, P. 17-57. Doi:10.1016/j.iref.2017.01.021

[19] Mahmud Abadi, H., Mahdavi, G. H., Fereydoni, M., The Impact of Earnings Management on the Predictive Ability of Accruals in Listed Companies in Tehran Stock Exchange (Implications for Earnings Quality), Accounting Knowledge, 2013, 4(12), P. 133-153. Doi: 10.22103/jak.2013.521

[20] Margaritis, D., Psillaki, M., Capital structure, equity ownership and firm performance, Journal of Banking and Finance, 2010, 34(3), P. 621-632. Doi.org/10.1016/j.jbankfin.2009.08.023

[21] Mohammad Azadi, Z., Mohammadi, E., Institutional Ownership, Ownership Concentration and Audit fees, Journal of Audit Science, 2015, 15(60), P. 165-176.

[22] Mousavi Shiri, S., Pishva, F., Khalatbari, H., The review of earnings management in different level of conservatism and institutional investors base on Benford law, Journal of Accounting and Auditing Review, 2016, 23(2), P. 213-234. Doi: 10.22059/acctgrev.2016.58467

[23] Najjar, B., Taylor, P., The relationship between Capital structure and Ownership structure, Managerial Finance, 2008, 12, P. 919-933. Doi:10.1108/03074350810915851

[24] Nikbakht, M., Rahmaninia, J., The Investigation of Relationship between Institutional Ownership and Firms Performance, Quarterly Journal of Securities Exchange, 2010, 3(9), P. 43-60.

[25] Peng C. Y. J., Lee, K. L., Ingersoll, G. M., An introduction to logistic regression analysis and reporting, The Journal of Educational Research, 2002, 96(1), P. 3-14. Doi:10.1080/00220670209598786

[26] Peykani, M., Review the Relationship between Free Cash Flow, Cash Flow Operating and Earning Per Share in Automotive Companies, Economic Magazine, 2013, 12, P. 111-122.

[27] Pound, J., Proxy Contests and the Efficiency of Shareholder Oversight, Journal of Financial Economics, 1988, 20, P. 237-265. Doi:10.1016/0304-405X(88)90046-3

[28]Saghafi, A., Talebi Najafabadi, A. H., Effect of Corporate Governance Mechanisms on the Companies' Performance of Initial Public Offering in Tehran Stock Exchange, Journal of Accounting and Auditing Review, 2016, 13(50), P. 9-32.Doi: 10.22054/qjma.2016.7053

[29] Salehi, A., Mohammadi, S., and Afshari, M., Impact of Institutional Ownership and Board Independence on the Relationship between Excess Free Cash Flow and Earnings Management, Advances in Mathematical Finance and Applications, 2017, 2(3), P. 91-105. Doi: 10.22034/amfa.2017.533104

[30] Salehi, A., Baharipour, A., and Mohammadi, S., The Impact of Institutional Ownership on the Relationship between Tax and Capital Structure, Advances in Mathematical Finance and Applications, 2016, 1(2), P. 57-67. Doi: 10.22034/AMFA.2016.527820

[31] Shahyakitash, M. N., Kazemi, M., and Amini, M., A Study of the Relationship between Ownership Structure and Performance of Listed Companies in Tehran Stock Exchange, Economic Magazine, 2012, 12, P. 5-24. http://ejip.ir/article-1-476-fa.html

[32] Shleifer, A., and Vishny, R. W., Stock market driven acquisitions, Journal of Financial Economics, 2003, 70(3), P. 295-311. https://doi.org/10.1016/S0304-405X(03)00211-3

[33] Solomon, J., and Solomon. A. Corporate Governance and Accountability, John Wiley & Sons,Hoboken. 2005

[34] Vijayakumaran, R., Capital structure decisions, agency conflicts, and Corporate Performance: Evidence from Sri­Lanka Listed Manufacturing firm. International Journal of Accounting and Business Finance, 2015, 1(1), P. 1-14.

[35] Yaghoobnezhad, A., saeedi, A., and Rozei, M., To Estimate Market Risk Premium with respect to Market Leverage in Tehran Stock Exchange, Financial Research Journal, 2011, 11(28), P.105-120.

[36] Zakaria, Z., Purhanudin, N., and Palanimally, Y., Ownership Structure and firm performance: Evidence from Malaysian trading and services sector, European Journal of Business and Social Sciences, 2014, 2(3), P. 32-43. https://doi.org/10.1111/1467-8454.12056

[37] Zalaghi, H., Godini, M., and Mansouri, K., The Moderating Role of Firms characteristics on the Relationship between Working Capital Management and Financial Performance, Advances in Mathematical Finance and Applications, 2019, 4(1), P. 71-88. Doi: 10.22034/AMFA.2019.581878.1158