Investigation of the Outcomes Resulting from Managers' Myopia Based on Agency Theory and Free Cash Flow Hypothesis

Document Type : Research Paper

Authors

1 Assistant Prof., Faculty of Economic-Management and Social Sciences, Shiraz University, Shiraz, Iran

2 M.Sc. in Accounting, Islamic Azad University-Marvdasht Branch, Marvdasht, Iran

Abstract

The purpose of this study is to investigate the relationship between free cash flows and stock return considering managers' myopia. Two hypotheses have been designed and tested, selecting 96 firms from accepted companies in the Tehran Stock Exchange for six-year period from 2005 to 2010 and using stock return for three years ahead (to 2012). The results show that free cash flows are negatively related to short-term and long-term stock returns. The sensitivity of stock return to Free Cash Flows in myopic firms is more than the other firms and, with an increase in free cash flows, more decrease in return is occurred in such firms. Therefore managers’ myopia and free cash flows, increase opportunistic behavior of managers in order to increase their personal interests and have negative influence on firm performance.

Keywords

References

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Accounting and Auditing Review
Volume 23, Issue 4
2016
Pages 546-527

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