Testing the Relationship between Free Cash Flow and Company Performance in Borsa Istanbul

  •  Eyup Kadioglu    
  •  Saim Kilic    
  •  Ender Aykut Yilmaz    


This study tests whether free cash flow affects the performance of firms in the context of the free cash flow hypothesis. The study applies a panel regression method to a data set consisting of 2,175 observations belonging to 370 companies listed in Borsa Istanbul during the period 2009-2015. A significant, negative relationship is found between free cash flow and firm performance measured by Tobin’s Q ratio. Greater free cash flow in the hands of managers leads to the lower performance and, conversely, less free cash flow in the hands of managers leads to higher performance. The results also confirm that leverage and dividend payments have a positive effect on performance. Thus, the results support the free cash flow hypothesis for Turkey.

This work is licensed under a Creative Commons Attribution 4.0 License.