A study of simultaneous relationship between free cash flow, dividend and debt policy of listed companies in the Tehran stock exchange (TSE)" Print

According to the existence of conflicts of interest between managers, stockholders and creditors optimization of decision making about usage of free cash flows (FCF) in productive investment opportunities is one of the important financial decisions at firm level. Because increasing in free cash flows lead to opportunistic behavior from managers especially in the firm, which exist interest conflicts. However, decision making about dividend and debt policy can mitigate their effect. According this reasoning, this research try to investigate simultaneous relationship between free cash flow, dividend policy and leverage of 120 listed companies in the Tehran stock exchange during 2007-2011 with Three Stage Least Square Simultaneous Model (3SLS). Our findings show that firms with high leverage have lower FCF, thus there is negative relationship between FCF and debt policy. Also, dividends have negative relationship with debt. We hope our results will be useful for standard sitter and exchange market policy maker to establish several standard and regulation about voluntary disclosure of FCF.