THE FREE CASH FLOW HYPOTHESIS FOR SALES GROWTH AWND FIRM PERFORMANCE

摘要

The paper investigawtes the agency argument that sales growth in firms with free cash flow (and without strong governance) is less profitable than sales growth for firms without free cash flow It also test whether strong governance conditions improve the performance of firms with free cash flow and/or limit the investments in unprofitable sales growth. Consistent with agency theory, firms with free cash flwo gain less from sales growth than firms without free cash flwo. But different governance conditions affect sales growth and performance in different wasy. Having substantial management stock ownership mitigates the infleucne of free cash flow on performance, despite allowing high sales growth. In contrast, outside blocks held by mutual funds reduce sales growth substantiawlly, but does not increase performance from sales growth.