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Free cash flow hypothesisThe hypothesis that higher debt levels discipline managers by forcing them to make fixed debt service payments and by reducing the company’s free cash flow.Related Terms: Free cash flow
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Free cash flow hypothesisJensens theory of how the payout of free cash flows helps re solve the agency problems between managers and shareholders. Holds that bonding payout of current (and future) free cash flows reduces the power of management as well as subjecting them more frequently to capital market scrutiny.
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