The Moderating Effect of Ownership Structure on the Relationship between Free Cash Flow and Asset Utilisation

Takiah Mohd Iskandar (), Rina Br Bukit and Zuraidah Mohd Sanusi
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Takiah Mohd Iskandar: Faculty of Economics & Business, Universiti Kebangsaan Malaysia Bangi, Selangor, Malaysia
Rina Br Bukit: Faculty of Economics, Universitas Sumatera Utara, Medan, Sumatra, Indonesia
Zuraidah Mohd Sanusi: Faculty of Accountancy, Universiti Teknologi MARA, Shah Alam, Selangor, Malaysia

Asian Academy of Management Journal of Accounting and Finance (AAMJAF), 2012, vol. 8, issue 1, 69-89

Abstract: Based on agency theory, ownership structure plays a role in monitoring managerial opportunistic behaviour. This study examines how different forms of ownership structures including foreign ownership, government ownership, and managerial ownership moderate the relationship between free cash flow and asset utilisation. This cross-sectional study involves companies listed on Bursa Malaysia. The results of a hierarchical multiple regression analysis show a negative relationship between free cash flow and asset utilisation. This finding indicates that free cash flow may be invested unproductively, thus contributing to inefficient usage of assets. This study has also empirically demonstrated that foreign and managerial ownership provides monitoring on the use of the companies' assets, especially in companies with high free cash flow. The findings contribute to the understanding of the role of the various dimensions of ownership structure in overseeing the use of the firm's assets.

Keywords: corporate governance; free cash flow; asset utilisation; foreign ownership; government ownership; and managerial ownership (search for similar items in EconPapers)
Date: 2012
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