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| Author: | Griffin, J. M. |
| Title: | A test of the free cash flow hypothesis: Results from the petroleum industry. |
| Journal: | Review of Economics and Statistics
1988 : FEB, VOL. 70:1, p. 76-82 |
| Index terms: | PETROLEUM INDUSTRY CASH FLOW |
| Language: | eng |
| Abstract: | Over the period 1979-85 the petroleum industry offers a unique test of the agency theory of corporate restructuring. A panel data set for 25 firms indicates considerable support for a hybrid free cash flow model in which exploration expenditures appear guided by neoclassical profitability measures, but at the margin, cash flow also exerts an independent influence. The magnitude of the parameter estimates suggests that the free cash flow hypothesis does not fully explain the gains from restructuring. One cannot rule out the possibility that other explanation based on the lower cost of debt capital is also playing a strong independent role. |
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