Investigation the relation between Free cash flows and Tobin’s Q ratio with Management compensation plans in companies listed in Tehran Stock Exchange

Subject Areas : Journal of Investment Knowledge

Azita Jahanshad ¹ , Mahshid Alam Ahrami ²

1 - Assistant Professor of Accounting and faculty member of the I.A.U Central Tehran Branch
2 - Master of Accounting, Science and Research Branch, Islamic Azad University,(ResponsibleAuthor).

Received: 2013-05-10 Accepted : 2013-08-21 Published : 2013-08-21

Keywords: Agency theory, Management Compensation Plans, Percentage of Board of Directo, Free Cash Flows, Tobin’s Q ratio,

Abstract :

Conflicts of interests may arise from managers’ lack of incentive for shareholders’ wealth maximization. For solving this problem and reducing agency costs motivational strategies should be used for managers. One of these strategies is management compensation plans and another strategy is ownership of mangement in company.This paper investigate the relation between Free cash flows and Tobin’s Q ratio with Management compensation plans in companies listed in Tehran Stock Exchange.  The purpose of this research is to answer this question that whether management compensation plans and their ownership in company leads to improvement of a company’s performance? Answering these questions helps companies and shareholders to find that whether these plans can increase their value and wealth or not. In this research Free cash flows and Tobin’s Q ratio criteria are used for performance evaluation. For this purpose data of 112 companies listed in Tehran Stock Exchange from 2006 to 2011 was studied. Hypothesis testing analysis was conducted by the use of statistical methods of Pearson’s correlation analysis, regression and variance analysis. The findings show that there is a positive and significant relation between management compensation and both free cash flows and Tobin’s Q ratio. Therefore increase in management compensation leads to improvement of a company’s performance, but percentage of board of directors’share has no significant relation with none of Free cash flow and Tobin’s Q ratio.