Testing a Static Nature of the Information Effect of Free Cash Flow: From the Point of View of Agency Cost of Free Cash Flow
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We try a static analysis of the informational effect of free cash flow on firm value using Korean corporate annual data from the firms listed in the Korea exchange. It is differentiated from extant literatures which are usually dependent upon event studies from the point of view of agency costs. We divide the sample and compare according to the occasion of Korean financial crisis and sub-category of industries. We test the hypotheses by OLS with time dummies and year dummies and check robustness by means of panel regression. Our test reveals that as firms have more free cash flow their standardized market value significantly decreases. Corporate activities related with reduction of free cash flow - such as capital expenditures, dividend payout, R&D expenditures, and leverage increase - are (generally) found to increase firm value. If firms with free cash flow engage in financial activities related with reduction of free cash flow their firm values are found to increase in round terms. We document that Korean financial crisis in 1997 exerted a significant influence on the informational effect of free cash flow and the effect is different according to industries also.
Abstract
We try a static analysis of the informational effect of free cash flow on firm value using Korean corporate annual data from the firms listed in the Korea exchange. It is differentiated from extant literatures which are usually dependent upon event studies from the point of view of agency costs. We divide the sample and compare according to the occasion of Korean financial crisis and sub-category of industries. We test the hypotheses by OLS with time dummies and year dummies and check robustness by means of panel regression. Our test reveals that as firms have more free cash flow their standardized market value significantly decreases. Corporate activities related with reduction of free cash flow - such as capital expenditures, dividend payout, R&D expenditures, and leverage increase - are (generally) found to increase firm value. If firms with free cash flow engage in financial activities related with reduction of free cash flow their firm values are found to increase in round terms. We document that Korean financial crisis in 1997 exerted a significant influence on the informational effect of free cash flow and the effect is different according to industries also.
참고문헌 (37)
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