Jensen (1986) provided the first hint of agency theory and his discussions on this topic brought to light many fundamental questions in the research literature, one of which is the free cash flow hypothesis. Jensen (1986) defines free cash flows as the net cash flows in excess of those required to finance all projects that have positive net present values ​​when discounted to the relevant cost of capital. Chen et. al (2011) found that free cash flow is an indicator of overinvestment. Theoretically, free cash flows are financial resources that management has the ability to allocate, therefore they are also called idle cash flows. Furthermore, Jensen (1986) argued that the presence of large amounts of free cash flow has consequences. The result would be internal insufficiency and a waste of corporate resources which would lead to agency costs weighing on shareholder wealth. As evidence of this, Jensen (1993) conducted an empirical examination of the agency problem and the required rate of return of US firms in the 1980s. The result of the study provided a statement that free cash flow is responsible for why the investment return of US business in the 1980s fell to the required rate of return. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay The free cash flow theory suggested by Jensen states that greater internal liquidity allows managers to avoid market scrutiny. Drobetz et a., (2010) argued that managers do not tend to pay cash as dividends and are motivated to invest, even when there is no positive net present value investment. This theory shows how managers are driven to raise funds to increase the resources under their control and to obtain powers of judgment and discernment over the company's investment decisions. They therefore act using company funds to avoid presenting detailed information to the capital market, although it is possible that managers invest in projects that could have negative effects on shareholder wealth (Ferreira et al., 2004). The role of free cash flow on decisions related to investment and financing activities has been extensively studied in the existing literature. Most of this research supported Jensen's theory and confirmed agency problems in companies with excessive amounts of cash flow. Previous research aimed to reduce free cash flow agency cost problems. Dividends and debt are the most important mechanisms in the existing literature to counteract free cash flow agency problems. Myers (1997), Agrawal and Knoeber (1996), and Yilei (2006) found that an increase in debt can create a mechanism against the agency problem caused by free cash flow. Fleming, Heaney, and McCosker (2005) also echoed this argument and mention some advantages of using debt financing in controlling and reducing agency costs. Grossman and Hart (1982) and Williams (1987) proposed the argument that increased leverage can exert influence on managers and reduce agency costs through the threat of liquidation, which can cause personal losses in terms of compensation , esteem and privileges of managers. This also creates pressure on managers to produce cash flows to cover interest payments (Jensen, 1986). In terms of dividends, Rojeff (1982) and.