Detecting and ranking cash flow risk factors via artificial neural networks technique

Mohammad Namazi, Ahmad Shokrolahi and Mohammad Sadeghzadeh Maharluie

Journal of Business Research, 2016, vol. 69, issue 5, 1801-1806

Abstract: Jensen (1986) predicts that managers with more free cash flows (FCF) available show an opportunistic behavior, which leads to the emergence of the FCF risk. Consequently, determining the relative importance of factors affecting the FCF risks is vital. The major purpose of this article is testing Jensen's assertion by identifying relative significance of the factors influencing FCF risks via artificial neural network (ANN). In effect, seven independent variables relating to FCF risks including debt policy, ownership concentration, ownership level, managerial ownership, state ownership, size of the firm, and profitability draw on the literature. The study collects 1224 company-year data from Tehran Stock Exchange (TSE) for the period 2001–2010. The study applies the Pearson's correlation and a three layer ANN. The results of testing the hypotheses show that, among the preceding 7 factors, profitability is the most important factor in determining FCF risks. Following profitability, the second and third most important factors are the debt policy and size of the company. Consequently, this finding posits a great implication for the stock markets and contradicts Jensen's (1986) study.

Keywords: Free cash flow risks; Artificial neural networks; Agency theory; Investment decisions; Tehran Stock Exchange (TSE) (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0148296315004828
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:69:y:2016:i:5:p:1801-1806

DOI: 10.1016/j.jbusres.2015.10.059

Access Statistics for this article

Journal of Business Research is currently edited by A. G. Woodside

More articles in Journal of Business Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().