The Association between Financial Leverage, Free Cash Flows and Overinvestment

• Main Authors: YEH,PO-TING, 葉柏廷
• Other Authors: 陳錦烽
• Format: Others
• Language: zh-TW
• Published: 2006
• Online Access: http://ndltd.ncl.edu.tw/handle/98374826523920974851

碩士 === 國立政治大學 === 會計研究所 === 94 === The main purpose of this study is to examine the association between a firm’s free cash flows and its overinvestment. In addition, I also examine the interrelationships between free cash flow, managerial ownership, institutional investors, and debt .The empirical results suggest that overinvestment is concentrated in firms with higher levels of free cash flows and lower opportunities for growth. Further tests find that a firm’s managerial ownership, institutional investors’ ownership may not effectively mitigate its overinvestment. However, debt appears to control overinvestment. Besides, I infer that firms with overinvestment may choose to adopt the accounting standards for asset impairment earlier to recognize their investment losses. Finally, I find evidence that firms may not be using debt control to mitigate their overinvestment, and a firm’s managerial ownership, institutional investors’ ownership and debt may serve as substitutes in controlling its agency costs.