An Analysis of Joint Effects of Investment Opportunity Set, Free Cash Flows and Size on Corporate Debt Policy

An Analysis of Joint Effects of Investment Opportunity Set, Free Cash Flows and Size on Corporate... This study, based on a sample of 1869 observations from 1989 to 1993 for non-regulated U.S. firms, examines the association between investment opportunity set (IOS), free cash flows (FCF) and debt, and also tests whether firm size acts as a moderating variable on this association. The results show that there is a significantly positive association between FCF and debt for low IOS firms, which provide support to Jensen's (1986) “control hypothesis”. The results also show that the positive association between debt and high FCF for low IOS firms is more pronounced for large firms, suggesting that the firm size serves as a moderating variable on the association. Review of Quantitative Finance and Accounting Springer Journals

An Analysis of Joint Effects of Investment Opportunity Set, Free Cash Flows and Size on Corporate Debt Policy

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Kluwer Academic Publishers
Copyright © 1999 by Kluwer Academic Publishers
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
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