Role of free cash flows in making investment and dividend decisions: The case of the shipping industry.

This paper investigates how cash flow influences the levels of investment and dividends in the shipping industry. Using generalized least squares (GLS) regressions the study reports how free cash flow (FCF) of shipping firms of different sizes influence investment and dividends. Moreover, it shows the role of debt in financing investment. The paper finds that FCF is a determinant of investment and dividends. Greater FCF leads firms to increase investment and reduce dividends. The use of debt alleviates overinvestment. This paper illustrates how shipping firms allocate FCF. The paper verifies that the agency theory can explain behaviour of managers with respect to the investment strategy. [ABSTRACT FROM AUTHOR]