The Mediating Role Of Agency Cost In The Relationship Between Free Cash Flow And Financial Performance"An Empirical Study Of Companies In The Engineering And Construction Sector Listed On The Amman Stock Exchange"

Abstract

The research aims to test the mediating role of agency cost in the relationship between free cash flow and corporate financial performance. To achieve this goal, we used the purposive sampling method to study a sample of engineering and construction industries companies listed on the Amman Stock Exchange for the period 2011-2022. Free cash flow was measured by its modified standard measure, agency cost by asset turnover, and financial performance by its Tobin'q ratio. We also controlled the effect of a group of control variables: company size, financial leverage, liquidity ratio, and sales growth. The results of the study showed that free cash flow has a direct positive impact on the financial performance of the studied companies. The free cash flow also positively affects the agency cost, which in turn positively affects the financial performance. The results of the research also showed the agency cost as a mediating variable between the free cash flow and the financial performance of the studied companies.