Free cash flow effect towards firm value

Ida Ayu Made Chandra Dewi; Maria Mediatrix Ratna Sari; I.G.A.N Budiasih; Herkulanus Bambang Suprasto

doi:10.21744/irjmis.v6n3.643

Authors

Ida Ayu Made Chandra Dewi
iamdchandradewi@gmail.com
Universitas Udayana, Denpasar, Indonesia
Maria Mediatrix Ratna Sari Universitas Udayana, Denpasar, Indonesia
I.G.A.N Budiasih Universitas Udayana, Denpasar, Indonesia
Herkulanus Bambang Suprasto Universitas Udayana, Denpasar, Indonesia

Keywords:

dividend payout, firm value, free cash flow, investment opportunity set, main board stock index

Abstract

A company is established to raise the value of the firm by maximizing profit and shareholder’s wealth. In the capital market, firm value is reflected in the stock price. To raise a firm value, needed to investigate the determinant of firm value. So, this research is aimed to determine the effect of free cash flow on firm value with dividend payout and investment opportunity set as mediator. Population in this research was companies listed on the Main Board Stock Index in Indonesian Stock Exchange for 2013-2017. The sample is 189 observation and it was taken by using purposive sampling technique. Data analysis technique used in this research is path analysis and Sobel test. This research founded that free cash flow has a positive significant effect on firm value and dividend payout, free cash flow has a negative effect on investment opportunity set, dividend payout has a positive significant effect on firm value, and investment opportunity set has a positive significant effect on firm value. Furthermore, dividend payout act as a mediator on the effect of free cash flow on firm value, but investment opportunity unable to mediate the effect of free cash flow on firm value.

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