Ownership concentration, free cash flow agency problem and future firm performance: New Zealand evidence

Haiyan Jiang, Ahsan Habib*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)


This study seeks to empirically examine the effect of ownership concentration on mitigating free cash flow agency problem in New Zealand. Following Jensen’s (1986) argument that managers have incentives to misuse free cash flows, this study tests whether concentrated ownership structure helps alleviate such a problem or exacerbates it. A natural consequence of this agency problem will be overinvestment and other operational inefficiencies which are likely to have a detrimental impact on firms’ future performance. The second objective of this paper is to examine the association between FCFAP conditional on ownership concentration on future firm performance. We measure free cash flow agency problem as the product of positive free cash flows and growth opportunities proxied by Tobin’s Q and find that financial institution-controlled ownership structure in New Zealand is positively associated with free cash flow agency problem. We also document that free cash flow agency problem conditional on ownership concentration negatively affects future firm performance.

Original languageEnglish
Pages (from-to)96-110
Number of pages15
JournalCorporate Ownership and Control
Issue number3
Publication statusPublished - 1 Mar 2012
Externally publishedYes


  • Agency theory
  • Free cash flow agency problem
  • Future firm performance
  • Over-investment


Dive into the research topics of 'Ownership concentration, free cash flow agency problem and future firm performance: New Zealand evidence'. Together they form a unique fingerprint.

Cite this