THE MODERATING ROLE OF AGENCY COSTS IN THE IMPACT OF FREE CASH FLOWS ON FINANCIAL DISTRESS: AN APPLICATION TO BIST100

Year 2026, Volume: 27 Issue: 1 , 71 - 101 , 26.03.2026

Büşra Görgel , İlhan Ege

https://doi.org/10.53443/anadoluibfd.1695110

https://izlik.org/JA35MP46LL

Abstract

Jensen (1986), who developed the free cash flow theory, argued that as free cash increases in enterprises, managers' tendency to use it for their own benefit will increase. Therefore, agency costs will increase in parallel with rising cash flow. In this direction, the aim is to investigate the relationship between free cash flows and financial distress among firms listed in the BIST100 Index for 2010-2023 and to determine whether managers and shareholders moderate this relationship. The relationship is investigated using panel data analysis. The research results indicate that free cash flows, sales, net period profit, and the asset profitability ratio have negative impacts of 0.019, 0.81%, 0.004, and 0.198 units, respectively, on financial distress. Conversely, agency costs between managers and shareholders moderate this relationship. The combined effect of free cash flows and intermediation costs significantly and negatively impacts financial distress, with an impact value of -0.174. In line with the findings, it can be said that the risk of financial distress can be reduced by using free cash flows to maximise value. The costs can be covered by adopting a financial flexibility approach as a result of the interaction, leading to the evaluation of profitable investment opportunities in such a situation.

Keywords

Free Cash Flow , Agency Cost , Financial Distress , Panel Data Analysis

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