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According to the agency theory, managers and shareholders have a conflict of interests
that is mitigated by corporate governance (CG). Previous studies indicate that this
conflict is high in the presence of higher Free Cash Flows (FCFs) that can be used by the
management to maximize their value rather than maximizing the shareholders’ value.
The study finds that FCF causes over investment. By analyzing a sample of 231
manufacturing firms listed on the Pakistan Stock Exchange (PSX) from 2011 to 2015, we
have gathered evidence that good CG negatively mitigates over investment by the firm
and negatively mitigates the over investment of FCF. Further, we have obtained evidence
that Islamic label mimics good CG and negatively mitigates firms’ over investment. Thus,
Islamic label can also proxy for good governance. However, we were unable to obtain
evidence that Islamic label moderates over investment of FCFs. Our findings are
generalizable and robust.
Naeem Ullah, Ammara Mujtaba, Nida Aman. (2019) Does Corporate Governance and Islamic Label Mitigates Over Investment of Free Cash Flow? Evidence from Pakistan, NUML International Journal of Business & Management, Volume 14, Issue 1.
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