Free cash flow has been identified as having the potential to be a major agency cost where managers make expenditures that have negative NPVs. This agency problem reduces profitability and lowers stock market valuations. We argue that firms with high free cash flow and poor growth opportunities will suffer from the free cash flow agency problem. Our results are consistent with expectations and show that firms with high free cash flow and low growth are associated with low long term profitability. We also find that managers use income-decreasing accruals when a firm has high free cash flow agency costs. This earnings management is motivated by managers’ desire to shift profits to future years when the full impact of the sub-optimum investments hits earnings. The evidence supports Fudenberg and Tirole’s (1995) managerial self-interest hypothesis. Consistent with the institutional investor monitoring hypothesis, we show that institutional shareholders act to deter managers from using negative discretionary accruals when free cash flow agency costs are potentially high.

The purpose of this paper is to empirically investigate the effects of corporate governance on the dividend payout (DP) in Australia where DP remains high and corporate governance system has recently been strengthened. A self-constructed governance indexes over 2001-2013 is used for the random effect panel Tobit model to investigate the effect of corporate governance on cash dividend. Two different versions of the indexes and the traditionally emphasized governance elements such as board structure are also used for the robustness checks. Estimation results report that a positive effect of governance, combined with size of firm and profitability, on DPs. In contrast, financial distress and the global financial crisis, respectively, have negative effect on dividend policy. Further examinations imply that the positive effect of governance is attenuated by growth opportunities while intensified by firm free cash flow and the franked dividend policy. The sample period and the governance indexes in this paper, respectively, are the longest and the most comprehensive among existing studies on Australian case. This paper also combined the traditional governance-dividend theme with corporate tax, particularly the unique franked dividend tax system.

We investigate the relation between CEO compensation and stock returns in Australia and find evidence that firms managed by CEOs with higher incentive pay earn higher returns in a period up to three years. The relation is more pronounced for firms led by younger CEOs and firms operating in research-intensive industries. In addition, we find some evidence indicating that innovation serves as a channel though which incentive pay affects stock returns. In particular, higher incentive pay induces CEOs to take more risk by investing more in risky projects, such as innovative activities which consequently make firms riskier and have higher expected stock returns

This study examines the presence of real activities manipulation (REM) of IPO firms utilizing the cross-sectional regressions on each industry-year (Roychowdhury, 2006). The real activities examined in this paper include sales manipulation, reduction of discretionary expenses and overproduction. We show that IPO firms have significantly negative abnormal cash flows from operations and significantly positive abnormal production costs in the IPO year. The findings suggest that IPO firms not only manipulate accruals to inflate reported earnings, but also engage in real activities manipulation. We also show that IPO firms‟ decisions to manipulate earnings in the IPO year is positively related to the amounts of IPO proceeds and negatively related to the underwriters‟ reputation rankings and the presence of venture capital