Investigation in Relationship between Free Cash Flow (FCF) Theory and Overinvestment and Role of Mechanism of Corporate Governance in Iranian Gapital Market

Abstract

The present research analyzed the relationship among Free Cash Flow (FCF) Theory and overinvestment with the role of corporate governance. Three variables have been utilized to examine corporate governance i.e. size of board and independence of directors and institutional investors. The statistical population of this study comprises of 119 enterprises listed in Tehran Security and Exchange Organization TSEO within time interval (2010-16). E-view software was used for analysis of research hypotheses and the mixed data technique was adapted. The results of research analyses indicated that the variables of free cash flows and institutional investors caused increase and decrease in overinvestment respectively. Similarly, the findings derived from this study suggest that the variables of size and independence of directors were not significantly related to overinvestment in the company. Finally, further research investigations showed that there had no significant effect by variables of corporate governance, size of board of directors and independence of directors on relationship among free cash flows and overinvestment and only variable of corporate institutional investor could affect this relationship.