STUDYING THE EFFECT OF FINANCIAL LEVERAGE ON AGENCY COST RESULTING FROM FREE CASH FLOW OF MANUFACTURING COMPANIES ACCEPTED IN TEHRAN STOCK EXCHANGE

Abstract

In current research is examined the relationship between financial leverage and agency cost resulting from free cash flow of manufacturing companies accepted in Tehran stock exchange (Iran). Data of 80 companies, during 2007-2012 is used for doing research. Panel analysis method is used to test hypotheses. Indices of financial leverage in this research are the ratio of debt to shareholder's equity and ration of long-term debt. The result of research denotes negative and significant relationship between ratio of debt to shareholder's equity and ratio of long-term debts with agency cost resulting from free cash flow. Also the result of this research corresponds to the theories of free cash flow of Jensen.