Free Cash Flow and Market Value of Firm: The Mediation Effect of weighted average cost of Capital
DOI:
https://doi.org/10.56967/ejfb2023308Keywords:
Free Cash Flow (FCF), Weighted Average Cost of Capital (WACC), Market Value Added (MVA), Market Value of Equity (MVE), Capital Asset Pricing Model (CAPM), Beta Coefficient (β)Abstract
Abstract
This study tests the effect of capital costs on the relationship between free cash flow (FCF) and market value. The study selected twenty-six corporations that were listed on the Jordan securities market from 2010 to 2019. The FCF is an independent variable, cost of capital is a mediation variable (proxy of WACC), and market value added (proxy of firm’s value) is a dependent variable. Baron & Kenny's methodology and the Sobel-test were used to analyze the data of the four hypotheses, including the mediation effect of capital costs on FFC & MVA. Based on the Sobel test results, there is a partial mediation effect of the cost of capital between the free cash flow and the market value added of the firm, and the free cash flow is positively related to the market value added. Therefore, FCF has the capability to send positive signals to financial market participants about the firm's performance.
Keywords: - Free Cash Flow (FCF), Weighted Average Cost of Capital (WACC), Market Value Added (MVA), Mmarket Value of Equity (MVE), Capital Asset Pricing Model (CAPM), Beta Coefficient (β).
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Copyright (c) 2023 جابر سيحان السراجي، عبدالكريم محمود محمد، ارشد فؤاد التميمي
This work is licensed under a Creative Commons Attribution 4.0 International License.
This is an Open Access article distributed under the terms of the creative commons attribution (CC BY) 4.0 international license which permits unrestricted use, distribution, and reproduction in any medium or format, and to alter, transform, or build upon the material, including for commercial use, providing the original author is credited.
