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An analysis of joint effects of free cash flows and ownership concentration on corporate debt policy

Author

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  • Dea'a Al-Deen Omar Al-Sraheen
  • Mohammad Naser Hamdan

Abstract

Free cash flow and concentrated ownership affect the debt policy of companies, and an emerging economy like Jordan offers an exciting scenario to examine such a phenomenon. The current research emphasises the debt policy of Jordanian industrial listed companies with free cash flow and concentrated ownership. The term of the current study was the five-year period from 2015-2019, using 51 firms with 255 firm-year observations. The findings revealed that an increase in the free cash flow level caused a debt reduction and that concentrated ownership positively influenced debt policy. This study demonstrated that excessive debt would not be prioritised as a desirable financing policy in a company with a high free cash flow level. This led to a reduction in their financial leverage ratios and increased agency costs because debt policy is one mechanism that firms use to decrease agency problems. This study contributes to exploring the implications of the free cash flow hypothesis and concentration of ownership in corporate debt policy to reduce the agency conflict also.

Suggested Citation

  • Dea'a Al-Deen Omar Al-Sraheen & Mohammad Naser Hamdan, 2022. "An analysis of joint effects of free cash flows and ownership concentration on corporate debt policy," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 26(3), pages 353-363.
    • Handle: RePEc:ids:gbusec:v:26:y:2022:i:3:p:353-363
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