A Test of the Free Cash Flow Hypothesis: Results from the Petroleum Industry
- 1 February 1988
- journal article
- Published by JSTOR in The Review of Economics and Statistics
- Vol. 70 (1) , 76
- https://doi.org/10.2307/1928152
Abstract
Over the period 1979-85 the petroleum industry offers a unique test of the agency theory of corporate restructuring. A panel data set for 25 firms indicates considerable support for a hybrid free cash flow model in which exploration expenditures appear guided by neoclassical profitability measures, but at the margin, cash flow also exerts an independent influence. The magnitude of the parameter estimates suggests that the free cash flow hypothesis does not fully explain the gains from restructuring.Keywords
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