文档介绍：本科毕业论文(设计)
外文翻译
原文:
Over-investment of free cash flow
Abstract
This paper examines the extent of firm level over-investment of fre cash flow. Using an accounting-based framework to measure over-investment and free cash flow, I find evidence that, consistent with agencycost explanations, over-investment is concentrated in firms with the highest levels of free cash flow. Further tests examine whether firms’ governance structures are associated with over-investment of free cash flow. The evidence suggests that certain governance structures, such as the presence of activist shareholders, appear to mitigate over-investment.
Introduction
This paper examines firm investing decisions in the presence of free cash flow. In theory, firm level investment should not be related to internally generated cash flows (Modigliani & Miller, 1958). However, prior research has docu-mented a positive relation between investment expenditure and cash flow (., Hubbard, 1998). There are two interpretations for this positive relation. First, the positive relation is a manifestation of an agency problem, where managers in firms with free cash flow engage in wasteful expenditure (., Jensen 1986; Stulz 1990). When managers’objectives differ from those of shareholders, the presence of internally generated cash flow in excess of that required to maintain existing assets in place and finance new positive NPV projects creates the potential for those funds to be squandered. Second, the positive relation reflects capital market imperfections, where costly externalfinancing creates the potential for internally generated cash flows to expand the feasible investment opportunity set (., Fazzari, Hubbard, & Petersen, 1988; Hubbard, 1998).
This paper focuses on utilizing accounting information to better measure the constructs of free cash flow and over-investment, thereby allowing a more powerful test of the agency-based explanation for why firm level investment is related to internally gen