Over-investment and Free Cash Flow: Evidence from Thailand
Over-investment and Free Cash Flow: Evidence from Thailand
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2015-04
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eng
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application/pdf
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4 pages
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International Conference on Business, Economics and Management (ICBEM'15) April 9-10, 2015 Phuket (Thailand), 14-17
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Abstract
This paper examines whether there is a relation
between over-investment and free cash flow. In perfect capital
market, it is expected that investment decision should not be
influenced by the level of cash flow. However, the free cash flow
hypothesis predicts that firms with higher free cash flow will be
vulnerable to the agency problem like over-investment. Using the
data from listed firms in the Stock Exchange of Thailand during
2001-2013, the result indicates that there is a positive relation
between over-investment and free cash flow. Therefore, this evidence
supports the free cash flow hypothesis and it implies that corporate
governance mechanism is required to mitigate the agency cost of free
cash flow.