Free Cash Flow and Investment Efficiency of Listed Manufacturing Companies in Nigeria
Open Access
- 1 June 2021
- journal article
- Published by SEISENSE Private, Ltd. in SEISENSE Journal of Management
- Vol. 4 (4), 77-88
- https://doi.org/10.33215/sjom.v4i4.698
Abstract
Purpose- This study aims to determine the relationship between free cash flow and investment efficiency of quoted manufacturing companies in Nigeria. Design- An accounting-based model developed by Richardson (2006) was employed to measure investment efficiency and free cash flow. The population of the study consist of all the listed manufacturing companies in Nigeria. Similarly, the purposive sampling technique was employed to arrive at forty-eight companies for 2008-2018. Findings- The results of the study confirm the agency theory of free cash flow. Hence, it established that there is a positive and robust relationship between free cash flow and overinvestment. Practical Implications- the findings of this study has practical implications to various group of users of financial information such as investors, policymakers and other stakeholders in the listed manufacturing sector in Nigeria. The study recommends that policymakers reduce the cost of debt, and likewise, managers should emphasize the facilitation of equity capital. Originality- To the best of the researcher's knowledge, this is the first study to examine the relationship between free cash flow and investment efficiency in Nigeria.Keywords
This publication has 24 references indexed in Scilit:
- Increased disclosure and investment efficiencyAsia-Pacific Journal of Accounting & Economics, 2013
- Excess cash holdings and investment: the moderating roles of financial constraints and managerial entrenchmentAccounting & Finance, 2012
- Financial Reporting Quality and Investment Efficiency of Private Firms in Emerging MarketsThe Accounting Review, 2011
- How does financial reporting quality relate to investment efficiency?Journal of Accounting and Economics, 2009
- Does Earnings Management Affect Firms’ Investment Decisions?The Accounting Review, 2008
- Accounting Quality and Firm-Level Capital InvestmentThe Accounting Review, 2006
- Over-investment of free cash flowReview of Accounting Studies, 2006
- Financial Reporting Quality and Investment EfficiencySSRN Electronic Journal, 2006
- Agency Cost Of Free Cash Flow, Corporate Finance, and TakeoversSSRN Electronic Journal, 1999
- Theory of the firm: Managerial behavior, agency costs and ownership structureJournal of Financial Economics, 1976