The Effect of Free Cash Flows and Agency Costs on Performance of Listed Companies in Tehran Stock Exchange

This research studied the effect of free cash flows and agency costs on the performance of listed companies in Tehran Stock Exchange. Therefore, among the companies those are members of the community and were eligible for the study, 140 companies were selected during the time span from 2006-2011. In the present study, efficiency ratios such as total asset turnover, operating costs ratio, the ratio of administrative and selling costs, the ratio of research and development and advertising costs, operating income volatility and net income volatility are used as measures of agency cost and Len and Paulsen model is used to measure free cash flows. F-Limer and Hausman tests were used to appropriate estimate of models for selecting among one of methods of the common effects, fixed effects and random effects. Results from research hypotheses testing have shown that there is no significant relationship between free cash flows and firm performance. While, there is significant and positive relationship between total asset turnovers with measures of firm performance. Negative and significant relationship is observed between operating income volatility with measures of firm performance.