The Interactive Effect of Conditional Conservatism and Agency Costs on the Cash flow-Investment Sensitivity Considering Strength of Statistical Models

Investors are interested in the analysis of cash flows and investments in companies and consequently the factors influencing them are important.The purpose of this study is to provide empirical evidence on the effect of conditional conservatism and agency costs on the relationship between cash flow and investment and whether the intensity of impact in firms with high agency costs is stronger or weaker than in low-agency cost firms. The sample consisted of 151 companies listed on Tehran Stock Exchange during the period of 2008-2018. The research hypotheses are tested using multiple regression with panel data. The results show that conditional coservatism, decreases the severity of the impact of cash flows on investment and the interactive effect of conditional conservatism more reduces the severity of this relationship, in high agency cost companies. The results also show that the explanation power based on GMM is better than the conventional OLS method. These findings can be incorporated into investor decision making to analyze corporate cash flows.