Free Cash Flow and Firms' Growth: An Empirical Investigation of Nigerian Quoted Non - Financial Firms
Abstract
This study analyzes the effect of free cash flow on the growth of non- financial quoted firms in Nigeria. Specifically, the impact of free cash flow on the percentage change in a total asset of selected quoted firms (Dangote Flour Mills, Honeywell Nig. Plc, Dangote Sugar Refinery, Flour Mills of Nig. Plc, and PZ CussonsPlc) over a period of five years (2012 - 2016) was analysed . Data used in the study were sourced from the annual reports of the selected quoted firms. Correlation analysis, restricted F - test, Hausmantest, and some panel estimation methods (pooled OLS estimation, fixed effect estimation, and random effect estimation) were employed to analyse the data. Results revealed that free cash flow exerts a negative impact on firms ' growth rate, to the tune of - 0.000391(p=0.179 > 0.05). The study, therefore, established that rising free cash flow has the capacity to erode the growth prospect of firms quoted on the Nigeria stock exchange. Based on this result, the study recommends that quoted firms in the country decrease their free cash flow, leverage increased turnover, explore viable/positive net present value projects, and reduce operational costs so as to be positioned for better growth in terms of percentage change in total asset.
Downloads
References
Atieh, S. H. (2014). Liquidity Analysis Using Cash Flow Ratios as Compared to Traditional Ratios in the Pharmaceutical Sector in Jordan. International journal of Financial research, 5(3), 146. Ballwieser, W., Bamberg, G., Beckmann, M., Bester, H., Blickle, M., Ewert, R. &Funke, H. (2012). Agency theory, information, and incentives: Springer Science & Business Media. Carroll, C. & Griffith, J. M. (2001). Free cash flow, leverage, and investment opportunities. Quarterly Journal of Business and Economics , 3, 141 - 153. Chebii, E., kipchumba, S. & Wasike, E. (2011). Relationship between firm’s capital structure and dividend payout ratios: companies listed at nairobi stock exchange (nse). Paper presented at the proceedings of 2011 kabarak univeristy 1 st annual international research conference. Cheng, Z., Cullinan, C. P. & Zhang, J. (2014). Free Cash Flow, Growth Opportunities, And Dividends: Does Cross - Listing Of Shares Matter? Journal of Applied Business Research, 30(2), 587. Frank, B. P. & James, O. K. (2014). Cashflow and Corporate Performance: A Study of Selected Food and Beverage Companies in Nigeria. European Journal of Accounting Auditing and Finance Research, 2(2), 77 - 87. Gregory, A. (2005). The long run abnormal performance of UK acquirers and the free cash flow hypothesis. Journal of Business Finance & Accounting, 32(5â€6), 777 - 814. Habib, A. (2011). Growth opportunities, earnings permanence and the valuation of free cash flow. Australasian Accounting, Business and Finance Journal, 5(4), 101 - 122. Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American economic review, 76(2), 323 - 329. Jensen, M. C. & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305 - 360. Liargovas, P. & Skandalis, K. (2015). Motives and marketing strategies of Greek companies exporting to South East European Markets. South -Eastern Europe Journal of Economics, 6(2). Mazloom, A., Azarberahman, A. & Azarberahman, J. (2013). The Association between Various Earnings and Cash Flow Measures of Firm Performance and Stock Returns: some Iranian evidence. International Journal of Accounting and Financial Reporting, 3(1), 24. Muneer, S., Ahmad, R. A. & Ali, A. (2017). Impact of Financial Management Practices on SMEs Profitability with Moderating Role of Agency Cost. Information Management and Business Review, 9(1), 23 - 30 Myers, S. C. & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of financial economics, 13(2), 187 - 221. Nor Hasmadila, M. (2014). Corporate governance and cash flow as determinants of dividend payout. Universiti Utara Malaysia. Nwanyanwu, L. (2015). Cash flow and Organizational performance in Nigeria: Hospitality and Print media industries perspectives. European Journal of Business, Economics and Accounting, 3(3), 66 - 70. Nyabwanga, R. N., Ojera, P., Simeyo, O. & Nyanyuki, N. F. (2013). An empirical analysis of the liquidity, solvency and financial health of Small and medium sized enterprises in Kisii Municipality, Kenya. European Journal of Business and Management, 5(8), 1 - 15. Omondi, M. M. & Muturi, W. (2013). Factors affecting the financial performance of listed companies at the Nairobi Securities Exchange in Kenya. Research Journal of Finance and Accounting, 4(15), 99 - 104. Rozeff, M. S. (1982). Growth, beta and agency costs as determinants of dividend payout ratios. Journal of financial Research, 5(3), 249 - 259. Sáez, M. & Gutiérrez, M. (2015). Dividend policy with controlling shareholders. Theoretical Inquiries in Law, 16(1), 107 - 130. Stouraitis, A. & Wu, L. (2004). The impact of ownership structure on the dividend policy of Japanese firms with free cash flow problem. Paper presented at the AFFI December Meeting, 23rd .
Copyright (c) 2018 Gideon Tayo Akinleye, Odunayo Magret Olarewaju, Kole Samson Fajuyagbe
This work is licensed under a Creative Commons Attribution 4.0 International License.
Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of a revised paper in the light of suggestions of the reviewers, editorial team edits and formats manuscripts to bring uniformity and standardization in published material.
This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.