A test of the free cash flow hypothesis

Larry H.P. Lang, RenéM. Stulz, Ralph A. Walkling
1991 Journal of Financial Economics  
We develop a measure of free cash flow using Tobin's q to distinguish between firms that hav,e good investment opportunities and those that do not. In a sample of successful tender offers, bidder returns are significantly negatively related to cash flow for low q bidders but not for high q bidders: further. the relation between cash Row and bidder returns differs significantly for low q and high q bidders. This result holds for several cash Row measures suggested in the literature and also in
more » ... ltivariate regressions controlling for bidder and contest-specific characteristics.
doi:10.1016/0304-405x(91)90005-5 fatcat:yqhtfe5uzfcujh6bhuan2pqtle