The impact of corporate governance and free cash flow on over-investment : empirical evidence from Egypt

Abstract EN

This study explores the impact of corporate governance and free cash on over-investment.

Based on a sample of 80 firms in the Egyptian business environment during the period 2012 to 2016.

The full sample is divided into subsamples: over-investment firms and under-investment firms then focus on over-investment firms only.

For over-investment firms, the study indicates that board duality and audit committee size have a positive effect on over-investment, whereas board independence and managerial ownership do not have an effect on over-investment.

The results of these study investigations also show that there is positive and significant relationship between free cash flow and over-investment.

In other words free cash flow may increase over-investment.

It can be implied according to these finding that free cash flow is deemed as a key factor in creating over-investment and it leads to the occurrence of some agency problems of information asymmetry issues.

These results are consist with findings from (Yang and Jiang, 2008), (Biddle et al.

, 2009), (Richordson, 2007) and (Chen et al.

, 2016).

Shareholders, owners and investors in Egyptʼs capital market are recommended to pay attention to the factor of free cash flow upon evaluation of investment and include this factors in their decision making models.