Applied Research in Financial Reporting

Applied Research in Financial Reporting

Investigate the Relationship of Financial Constraints and Positive and Negative Free Cash Flow on Overinvestment and Underinvestment in Corporate Assets Using the Static and Dynamic Model

Document Type : Original Article

Authors
mahdi moradi
seyedeh fahimeh mousavi
zakieh marandi
Professor ,Department of Accounting, Faculty of Economics and Business Administration, Ferdowsi University Of Mashhad (FUM)
Abstract
The purpose of this study is to investigate the relationship between positive and negative free flow of cash flows and financial constraints on over-investment and underinvestment in corporate assets. This study is a descriptive-correlational study. The statistical population of the study includes 122 companies listed in Tehran Stock Exchange between 2006 and 2015. In the present study, four hypotheses were developed and each one was tested using a static and dynamic approach. For a static approach, constant regression was used and for a dynamic approach was used generalized momentum regression. The results showed that in the stationary state financial constraints exacerbated by the impact of significant free cash flow of investment is too. The impact for positive free cash flow and negative free cash flow were directly and reverse. In dynamic mode resonator impact of financial constraints on the relationship between free cash flow and investment, too, is negative. Financial constraints moderating role on the relationship between free cash flow positive and negative values in both static and dynamic approach to investment is not enough. On the other hand the dynamic approach to financial constraints moderating role on the relation between a positive free cash flow and investment has not been excessive.
Keywords
Positive Free Cash Flow
Negative Free Cash Flow
Over-Investment
Under-investment
Financial Constraints
Static and Dynamic Approach

  • Receive Date 09 October 2017
  • Revise Date 09 June 2018
  • Accept Date 18 March 2018