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Agency Costs of Free Cash Flow, Corporate Finance, and Takeeovers

The interests and incentives of managers and shareholders conflict over such issues as the optimal size of the firm and the payment of cash to shareholders. These conflicts are especially severe in firms with large free cash flows--more cash than profitable investment opportunities. The theory developed here explains 1) the benefits of debt in reducing agency costs of free cash flows, 2) how debt can substitute for dividends, 3) why diversification programs are more likely to generate losses than takeovers or expansion in the same line of business or liquidation-motivated takeovers, 4) why the factors generating takeover activity in such diverse activities as broadcasting and tobacco are similar to those in oil, and 5) why bidders and some targets tend to perform abnormally well prior to takeover.

Từ khóa: free cash flow, corporate finance, takeeovers, profitable investment opportunities, free cash flows, chi phí của dòng tiền tự do

7 p tieuhoa 15/01/2013 267 2

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