Product strategies and the free cash flow theory : the Singapore evidence.

Abstract

Jensen’s free cash flow theory proposes that firms with high free cash flow and poor investment opportunities are likely to engage in investments that are not advantageous to shareholders. For firms with poor investment opportunities versus firms with good investments, the theory proposes that the mean abnormal return associated with announcements of poor investment decisions is smaller. For firms with poor investment decisions, the theory also predicts that the abnormal return is a decreasing function of cash flow.