The Relation among Growth Opportunities in Valuation of Free Cash Flow

Abstract

This paper examines empirically the effect of firm growth opportunities on the market valuation of free cash flow. An accounting-based valuation framework is developed where stock returns are regressed on free cash flow interacted with growth opportunities proxy, after controlling for book values, dividends, and current earnings. Required data from 89 companies over a ten year period is quarterly gathering. According to the result, it can in decisions affecting corporate managers and investors are to achieve an appropriate return in the Iranian capital market. The results indicate a significant positive relationship between free cash flow and return on equity with growth opportunities.

Keywords

• Agency theory
• growth opportunities
• Free Cash flow