Effect of Free Cash Flow Agency Problem on Ohlson Model's in Firm Life-Cycle Framework: Evidence from Tehran Stock Exchange (TSE)

The main objective of this study was to the effect of free cash flow agency problem on Ohlson model's in firm Life-Cycle Framework. Free cash flow agency problems are effective in the valuation of the firm by influencing the earning reliability, which also affects the book value per share indirectly. In this study we review the effects of free cash flow agency problems on the value relevance of earning per share and the book value per share stock price. Hypotheses once for all firms and once with the consideration of the life cycle are also studied. According to the considered situations for selecting the samples, 107 firms were chosen during the period of 2005 to 2013. The several statistical tools have been used in this research. Firstly, multi regressions were used for testing the study hypotheses. Lastly, Adjusted-R2 and Test Z-Wong was used to for the study variables. First, the descriptive statistical tools for the main variables are shown; then the main statistical problems in these regression models are discussed; and lastly the regression models statistical results are provided. Research findings indicate that earning per share has a significant and positive relationship with book value per share stock price, and free cash flow agency problems will result in the reduction of the relevance of earning per share and book value per share stock price. The results are now in various stages of the life cycle (growth, maturity and decline) has been confirmed. The results are firm in various stages of the life cycle are significantly different from each other. Also in stages of decline, the highest agency problems hold to maturity and growth. Free cash flow agency problems will result in the reduction of the relevance of earning per share and book value per share stock price.