Open AccessThe Relationship between capital structure, free cash flow, diversification and firm performance
Author(s) -
Rohollah Shahjahani,
Maryam Bokharayan
Publication year - 2019
Publication title -
journal of management and accounting studies
Language(s) - English
Resource type - Journals
ISSN - 2693-8448
DOI - 10.24200/jmas.vol4iss04pp22-31
Subject(s) - free cash flow , diversification (marketing strategy) , cash flow , capital structure , leverage (statistics) , business , monetary economics , capital call , econometrics , economics , microeconomics , financial capital , finance , mathematics , individual capital , statistics , marketing , profit (economics) , debt
This study investigated whether there are inter-relationships among capital structure (financial leverage), free cash flow, diversification and firm performance. Methodology: To this, 78 active firms in this area were selected between 2011 and 2015. Internal independent variables involve capital structure, free cash flow, diversification and firm performance. To study inter-relationships of variables, simultaneous equation system and STATA software were applied. Results: Results indicated that a positively significant relation exists between free cash flow and firm performance in 95% level of significance. There is a negatively significant correlation between capital structure and free cash flow in 95% level of significance. Between free cash flow and diversification, a negative and significant relation exists, with 90% level of significance. And, a bi-directional relation exists between capital structure and firm performance in 90% level of significance. There is no bi-directional relation between diversification and firm performance. Conclusion: Finally, according to results, capital structure and diversification have no bi-directional relation.