Analysing the Impacts of Free Cash Flow, Agency Cost and Firm Performance in Public Listed Companies in Malaysia

Abstract

This study intended to examine the relationship between free cash flow and agency costs towards firm performance based on the data from 350 public listed companies in Malaysia. The data was collected from year 2005 to 2015. There is a need to re-examine the free cash flow hypothesis and the agency theory based on Malaysian data as the results from previous studies shown a mix results.The findings shown free cash flow is significantly giving positive impact on firm performance. This result is contradict to free cash flow hypothesis, but it can occur due to, when the availability of investments opportunities that can be generated when firm more free cash flow that later able to increase firm performance. Meanwhile, total asset turnover has a positive impact on return on asset. However, the operating expenses ratio demonstrates that the operating expenses ratio has a negative impact on return on asset. The mix findings of agency cost are supported by previous studies.

Moderating role of board gender diversity and firm size on the relationship between free cash flow and corporate sustainability of Thai listed companies

“…However, if companies employ net cash flows for other purposes, for example, investing in property, plant, and equipment, joining other business ventures, paying dividends, they may not have business continuity. This informative value of FCF is in line with previous studies, for instance Sapuan et al (2021), Fu et al (2022, Aburisheh et al (2022), and Tee (2023). The implication of this finding is important.…”

“…However, research on sustainability is limited. Therefore, this study initially replicates related previous studies to observe the informative value of FCF on firm performance (Park and Jang, 2013;Wen, 2017;Sapuan et al, 2021). This comes to the main objective of this study.…”

“…Al-Fasfus (2020) asserted that FCF, liquidity, leverage and profitability affected the dividend pay-out ratio. Sapuan et al (2021) investigated the association between FCF, agency costs, and firm performance. The findings highlighted a positive and significant effect of FCF on firm performance.…”

قياس أثر جودة الإستحقاق المحاسبي على العلاقة بين التدفقات النقدية الحرة والأداء المالي لمنشآت الأعمال السعودية: دراسة تطبيقية

“…‫أل‬ ‫فس‬ ‫لرولهد‬ ‫ةع‬ ‫لر‬ ‫كلهدممسقاس‬ ‫ر‬ ‫حل‬ ‫ل‬ ‫لدألاف‬ ‫لهدم.تثمه‬ ‫ه‬ ‫رال‬ ‫تييحل‬ ‫عهألهدم‬ ‫نلق‬ ‫فولت‬ ‫تعالا‬ Muchtar et al, 2018 (Sapuan et al, 2021;Sinaga and Maksum, 2022;Yousef and Ojah, 2022) ‫.تمهل‬ ‫جلقآلهألرهلاللجل‬ ‫حل‬ ‫هلر‬ ‫ثلق‬ ‫لهلرعسةحلم‬ ‫ا‬ ‫رول‬ ‫هلهدمضهاأل‬ ‫لر‬ ‫آلهدممسقاس‬ ‫حلر‬ ‫م‬ ‫هدم.س‬ ‫يل‬ ‫لهلبهق‬ ‫ل‬ ‫سد‬ ‫لهدم‬ ‫لرةسق‬ ‫ل‬ ‫هاس‬ ‫لهدلق‬ ‫ةض‬ ‫لرهل‬ ‫سلرسلق‬ ‫ةهمتفسلهد.سةهأحل‬ ‫تييل‬ ‫عهألهدم‬ ‫نلق‬ ‫لت‬ ‫ز‬ ‫نس‬ ‫يلاللرباهلا‬ ‫لافالهلبهق‬ ‫قهمألر‬ ‫د‬ ‫الأل‬ ‫هد.س‬ (Chung et al, 2005;Abughniem et al, 2020;Lai et al, 2020) (Biddle and Hilary, 2006;Biddle et al, 2009;Rad et al, 2016;Eissa et al, 2023 (Chung et al, 2005;Abughniem et al, 2020;Lai et al, 2020) ‫ل‬ ‫و‬ ‫عس‬ ‫ل‬ ‫ه‬ ‫لريا‬ ‫مسب‬ ‫ل‬ ‫ن‬ ‫لت‬ ‫لهأللهن‬ ‫هاس‬ ‫لهدلق‬ ‫لر‬ ‫لهدةليل‬ ‫ل‬ ‫لق‬ ‫مس‬ ‫ل‬ ‫ح‬ (Gaio and Raposo, 2011;Hau, 2017;Bukit et al, 2019 Brush et al, 2000;Chung et al, 2005;Hau, 2017;Butt et al, (Chen et al, 2012;Tang et al, 2014;Sapuan et al, 2021) Zhou and Ruland, 2006;Huang et al, 2009) . ‫لل‬ ‫ل‬ ‫ل‬ ‫تلرالس‬ ‫األهدسكسدألد‬ ‫لر‬ ‫مهألمسبيلهلاتعالسةلهدمعسافولرولهدعللر‬ ‫نلق‬ ‫لت‬ ‫هاس‬ ‫ةضلهدلق‬ ‫كسدكلربكلل‬ ‫ل‬ ‫لهلاتثمسق‬ ‫لرهط‬ ‫لرمسقاس‬ ‫لر‬ ‫لهدعل‬ ‫و‬ ‫لل‬ ‫لر‬ ‫يح‬ ‫لهدعه‬ ‫أ‬ ‫الل‬ ‫هد‬ (Wang et al, 2015;Gaio et al, 2023;Eissa et al,…”

Impacts of Free Cash Flow and Agency Cost on Firm Performance

“…Free cash flow is net cash flow minus the firm's investment funding needs. Large amounts of free cash flow that generate by companies can raise agency problems potential between management and shareholder (Sapuan, 2021). Manager of the firm tends to allocate the amount of free cash flow for unprofitable uses.…”