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Free cash flow and corporate profitability in emerging economies: Empirical evidence from Vietnam

Author

Listed:
  • An Nguyen

    (Dalat University)

  • Tuan Nguyen

    (Dalat University)

Abstract

This paper examined the relationship between free cash flow and corporate profitability of Vietnamese listed firms. Basing on the agency theory of free cash flow, several previous studies proposed a negative relationship between free cash flow and corporate profitability. In this study, we argue that the presence of information asymmetry in the financial market of developing economies may limit the access to external sources of finance. Thus, free cash flow may serve as a cheaper alternative source of finance. This benefit may reduce, nullified, or even outweigh the agency cost caused by excess free cash flow. The empirical analysis results basing on a sample of 208 Vietnamese listed non-financial firms in the period from 2012 to 2016 showed that free cash flow seems to have a positive effect on the corporate profitability of Vietnamese listed firms.

Suggested Citation

  • An Nguyen & Tuan Nguyen, 2018. "Free cash flow and corporate profitability in emerging economies: Empirical evidence from Vietnam," Economics Bulletin, AccessEcon, vol. 38(1), pages 211-220.
    • Handle: RePEc:ebl:ecbull:eb-17-00746
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    References listed on IDEAS

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    Cited by:

    1. Nguyen An Thanh Hong & Nguyen Tuan Van, 2018. "Working Capital Management and Corporate Profitability: Empirical Evidence from Vietnam," Foundations of Management, Sciendo, vol. 10(1), pages 195-206, September.
    2. Nguyen, Quang Khai, 2022. "Determinants of bank risk governance structure: A cross-country analysis," Research in International Business and Finance, Elsevier, vol. 60(C).

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    More about this item

    Keywords

    Free cash flow; Agency theory; Information asymmetry; Profitability; Vietnam.;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

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