This study investigates whether agency costs of free cash flow (FCF) are associated with conditional conservatism. Prior research documents that conditional conservatism improves ex ante efficient investment decisions and facilitates ex post monitoring of managers’ investment decisions. As conditional conservatism can provide protection from possible managerial expropriation, the demand for conditional conservatism should increase with the agency costs of FCF. Using excess cash as a proxy for the agency costs of FCF, I provide evidence that firms with higher agency costs of FCF incorporate losses in a timelier manner relative to gains compared to their counterparts. Additionally, the association between excess cash and conditional conservatism predictably varies with the presence of alternative monitoring mechanisms that mitigate FCF problems, such as debt or dividend payouts or repurchases. Further investigation suggests that greater conservatism is associated with a lower likelihood of overinvestment among firms bearing high agency costs of FCF, demonstrating the ability of conservatism to reduce agency costs of FCF.

中文翻译：

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自由现金流量和有条件的保守的代理成本

这项研究调查了自由现金流量（FCF）的代理成本是否与条件保守主义有关。先前的研究表明，有条件的保守性可以改善事前有效的投资决策，并有助于事后对经理的投资决策进行监控。由于有条件的保守主义可以为可能的管理者没收提供保护，因此有条件的保守主义的需求应随着FCF的代理费用而增加。我使用多余的现金作为FCF代理成本的代表，我提供的证据表明，FCF代理成本较高的公司相对于收益而言，其损益录入的时间要比其同行的要及时。此外，多余的现金和有条件的保守主义之间的关联会随着存在减轻FCF问题的替代监控机制而变化，例如债务或股息支出或回购。进一步的研究表明，在承担较高FFC代理成本的公司中，较高的保守性与较低的过度投资可能性相关，这表明了保守主义降低FCF代理成本的能力。