The underlying mechanisms of the relationships between corporate financial policies and firm value: flexibility and agency theory perspectives
Asia-Pacific Journal of Business Administration
ISSN: 1757-4323
Article publication date: 17 May 2022
Issue publication date: 11 May 2023
Abstract
Purpose
This paper aims to discover the underlying mechanisms by which corporate financial policies, cash holdings, capital structure and dividend payouts, transmit their effects on firm value in the “Middle East and North Africa” (MENA) emerging markets.
Design/methodology/approach
The authors employ a novel integration of path modelling with parallel multiple mediation analysis to empirically test the hypothesised indirect effects through the mechanisms represented by the value of financial flexibility (VOFF) and agency costs.
Findings
The authors do not find any evidence of the association between cash holdings, dividend payouts, and firm value when the mechanisms through the VOFF and agency costs are considered. While these two forces, i.e. the VOFF and agency costs, have balanced mediation effects on the relationship between cash holdings and firm value, they represent equivalent and complementary mechanisms by which dividend payouts transmit their positive impact on firm value. Moreover, we document a significant negative partial mediation effect of agency costs on the relationship between leverage and firm value; however, we do not find any evidence supporting the mediation effect of the VOFF on such a relationship.
Originality/value
This paper sheds new light on the forces that govern the nature of the relationships between corporate financial policies and firm value.
Keywords
Acknowledgements
The authors would like to thank Mubasher International Group for providing us access to their financial database “Decypha” for listed firms in the MENA region (www.decypha.com).
Citation
El-Ansary, O. and Hamza, H.F. (2023), "The underlying mechanisms of the relationships between corporate financial policies and firm value: flexibility and agency theory perspectives", Asia-Pacific Journal of Business Administration, Vol. 15 No. 3, pp. 440-465. https://doi.org/10.1108/APJBA-08-2021-0420
Publisher
:Emerald Publishing Limited
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