Analysing the Impacts of Free Cash Flow, Agency Cost and Firm Performance in Public Listed Companies in Malaysia


  • Noraina Mazuin Sapuan Faculty of Industrial Management, Universiti Malaysia Pahang, Malaysia
  • Norwazli Abdul Wahab Faculty of Industrial Management, Universiti Malaysia Pahang, Malaysia
  • Muhammad Ashraf Fauzi Faculty of Industrial Management, Universiti Malaysia Pahang, Malaysia
  • Akrom Omonov Department of Banking, Tashkent Institute of Finance, Amir Temur Street, Tashkent, Uzbekistan



Free cash flow, Agency cost, Firm performance, Malaysia


This study intended to examine the relationship between free cash flow and agency costs towards firm performance based on the data from 350 public listed companies in Malaysia. The data was collected from year 2005 to 2015. There is a need to re-examine the free cash flow hypothesis and the agency theory based on Malaysian data as the results from previous studies shown a mix results.The findings shown free cash flow is significantly giving positive impact on firm performance. This result is contradict to free cash flow hypothesis, but it can occur due to, when the availability of investments opportunities that can be generated when firm more free cash flow that later able to increase firm performance. Meanwhile, total asset turnover has a positive impact on return on asset. However, the operating expenses ratio demonstrates that the operating expenses ratio has a negative impact on return on asset. The mix findings of agency cost are supported by previous studies.

Author Biography

Noraina Mazuin Sapuan, Faculty of Industrial Management, Universiti Malaysia Pahang, Malaysia

Dr Noraina Mazuin Sapuan is a Senior Lecturer in Faculty of Industrial Management, University Malaysia Pahang, Malaysia. She completed her undergraduate and Master degree at Universiti Kebangsaan Malaysia (UKM) majoring in Applied Economics and Public Policy and Islamic Economics, respectively. She graduated with Doctor of Philosophy (Economics) from Universiti Malaysia Terengganu (UMT) and had successfully been awarded Pro-Chancellor Award during the 15th Convocation Ceremony in 2016. She has enormous experiences in teaching at tertiary level as well as research and consultancy works. Her area of interests is in Applied Macroeconometrics, Financial Economics, Circular Economy - Sustainable Development Goals (Micro/Macro), Environmental Economics, Islamic Banking and Finance and Personal Financial Planning. With her experiences in research, she has secured numerous external and internal grants from public and private institutions. In addition, she also had won many awards in international and national conferences and research exhibitions. In terms of management experience, she has vast involvements in academic management at Higher Education Institution.  She has been appointed as a Senator at her former university for two consecutive cycles (2016-2020) and as the Head of Department for Accounting and Finance Department (2016-2020). With her experience and knowledge, she hopes to become an academician that contributes positively towards the expansion of knowledge in the field of economic, finance and sustainability management. 


Abughniem, M. S., Al Aishat, M. A. H. & Hamdan, A. (2020). Free Cash Flow and Firm Performance: Empirical evidence from the Amman Stock Exchange, International Journal of Innovation, Creativity and Change, Vol. 10, Issue 12, pp.668-681

Antoniadis, I., Lazarides, T., Sarrianidis, N., & Goupa, H. (2008). The impact of Agency Problem in Firm value and the Greek Stock Exchange Market Financial Crisis. In International Conference on Applied Economics– ICOAE (p. 27).

Bhundia, D. A. (2012). A comparative Study Between Free Cash Flows and Earnings Management. Business Intelligence Journal, Vol.5 No.1, 123-129.

Brush, Thomas H., Philip Bromiley and MargarethaHendrickx, 2000.The Free Cash Flow Hypothesis for Sales Growth and Firm Performance.Strategic Management Journal, 21, 455-472.

Byrd, J. (2010). Financial Policies and the Agency Costs of Free Cash Flow: Evidence from the Oil Industry. International Review of Accounting, Banking and Finance, Vol. 2 No. 2, pp. 23-50

Choudhary, P. (2021). Agency costs, Board structure and Institutional investors: Case of India. Asian Journal of Accounting Research.

Ghanbari, M., Haidari, F., Nazarzadeh, S. & Abasi, B. (2015) The Relationship between Cash Flow and Financial Performance of Accepted Companies in the Tehran Stock Exchange, MAGNT Research Report (ISSN. 1444-8939) Vol.3 (2), 1829-1841.

Griffin P., Lont D., Sun Y. (2010). Agency Problems and Audit Fees Further Tests of the Free Cash Flow Hypothesis. Accounting & Finance, Vol. 50, Issue 2, 321–350.

Gul, F. A., & Tsui, J. S. L. (2012). Free cash flow, debt monitoring, and audit pricing: Further evidence on the role of director equity ownership. Auditing, 20 (2), 71-84.

Hau, L. L. (2017). Free Cash Flow and Firm Performance: Evidence from sectoral level for vietnams listed firms. International Journal of Advanced Engineering, Management and Science (IJAEMS). Vol. 3, Issue 4, 296-300.

Hwang, L.S., Kim, H., Park, K. and Park, R.S. (2013). Corporate governance and payout policy: evidence from Korean business groups. Pacific-Basin Finance Journal, Vol. 24 (September), 179-198.

Iman Heydari, M. M. (2014). Investigating The Relationship Between Free Cash Flow and Firm Performance: Evidence From Tehran Stock Exchange.

Jayiddin, N. F., Jamil, A., & Roni, S. M. (2017). Capital structure influence on construction firm performance. In SHS Web of Conferences (Vol. 36, p. 00025)

Jensen, M. C.(1986). Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers. American Economic Review, Vol. 76 No. 2, 323-329

Jensen, M. C. and Meckling, W. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, Vol. 3, 305-360.

John, K., Knyazeva, A. and Knyazeva, D. (2015). Governance and payout precommitment. Journal of Corporate Finance, Vol.33(August), 101-117.

Kadioglu, E. and Yilmaz, E.A. (2017). Is the free cash flow hypothesis valid in Turkey. Borsa Istanbul Review, Vol. 17 No. 2, 111-116.

Kyazze, L. M., Nsereko, I., & Nkote, I. (2020). Cooperative practices and non-financial performance of savings and credit cooperative societies. International Journal of Ethics and Systems.

Lachheb, A. & Slim C. (2017). The Impact Of Free Cash Flow and Agency Cost on Firm Performance. Proceedings of ISER 56th International Conference, Rome, Italy, 20th -21st May 2017Labhane, N.B. and Mahakud, J. (2016). Determinants of dividend policy of Indian companies: A panel data analysis", Paradigm, Vol. 20 No. 1, 36-55.

Lang, L.H.P. and Litzenberger, R.H. (1989).Dividend Announcements: Cash Flow Signaling vs. Free Cash Flow Hypothesis. Journal of Financial Economics, Vol. 24, 181-191.

Lang, L. Stulz, R. and Walking, R. (1991). A Test of the Free Cash Flow Hypothesis: The Case of Bidder Returns. Journal of Financial Economics, Vol. 29 No. 2, 315-336.

Li, S., Gao, D. , and Hui, X (2020). Corporate Governance, Agency Costs, and Corporate Sustainable Development: A Mediating Effect Analysis. Hindawi, Discrete Dynamics in Nature and Society,Volume 2021, Article ID 5558175

Hau, L.L. (2017). Free cashflow and firm performance: Evidence from sectoral levels for Vietnamese listed firms. International Journal of Advanced Engineering, Management and Science, Vol-3, Issue-4, pp. 296-300

Miguny, A., Zinjirdar, M. & Gesemy, M. (2013). Explain the relationship between agency cost and performance of companies with institutional ownership firms accepted in Tehran Stock Exchange. Indian Journal of Fundamental and Applied Life Sciences, 3(3) 176-179.

Modigliani F. and Miller M. (1958). The cost of capital, corporation finance and the theory of investment. American Economic Review, 261-297.

Nobance, H., Ellili, N., & Abraham, J. (2017). Equity concentration, agency costs and performance of non-financial firms. Global Business Review, 18(1):1-9

Nuhu, B. A., Dandago, K. I., Mohammad, L., Ado, A. B. & Abdulkarim, U. F. (2020). Impact of Agency Costs on Financial Performance of Listed Consumer Goods Companies in Nigeria, Journal of Management and Theory Practice, Vol.1, Issue 3, pp. 51-55

Pahi, D. & Yadav, I.S. (2021). Product market competition, agency cost and dividend payouts: new evidence from emerging market. Journal of Management and Governance,

Sitthipongpanich T., (2017). Family ownership and free cash flow. International Journal of Managerial Finance, Vol. 13 Issue: 2, pp.133-148.

Velnampy, T. & Kajananthan, R. (2013). Cash Position and Profitability of Telecommunication Sector in Sri Lanka. Greener Journal of Social Sciences, Vol. 3 (6), 324 – 333.

Wambua, P. (2013). Effects of agency costs on financial performance of companies listed at the Nairobi Security Exchange. International Journal of Economics and Finance,1 (5):587-607

Wang, G. Y. (2010). the impacts of free cash flow and agency costs on firm performance. Journal Service Science and Management, 408-418. doi: 10.4236/jssm.2010.34047

Wen, R. (2017). Free Cash Flow, CEO Ability and Firm Performance. Available at SSRN: or

Wu, L. (2014). The Impact of Ownership Structure on Debt Financing of Japanese Firms with the Agency Cost of Free Cash Flow. EFMA 2004 Basel Meetings Paper.




How to Cite

Sapuan, N. M., Abdul Wahab, N. ., Fauzi, M. A. ., & Omonov, A. . (2021). Analysing the Impacts of Free Cash Flow, Agency Cost and Firm Performance in Public Listed Companies in Malaysia. Journal of Governance and Integrity, 5(1), 211–218.



JGI Vol. 5 Issue 1, December 2021

Most read articles by the same author(s)