THE IMPACT OF FREE CASH FLOW, AGENCY COSTS, AND FINANCIAL LEVERAGE ON THE FINANCIAL PERFORMANCE OF LISTED FIRMS IN VIETNAM: THE MODERATING ROLE OF FIRM SIZE AND AGE

Nguyen, Nam; Vo, Thong; Le, Nhi

doi:10.22059/ijms.2026.401093.677929

THE IMPACT OF FREE CASH FLOW, AGENCY COSTS, AND FINANCIAL LEVERAGE ON THE FINANCIAL PERFORMANCE OF LISTED FIRMS IN VIETNAM: THE MODERATING ROLE OF FIRM SIZE AND AGE

Articles in Press

Document Type : Research Paper

Authors

Nam Nguyen ¹

Thong Vo ²

Nhi Le ²

¹ 97 Vo Van Tan

² Student of Banking and Finance Faculty, Ho Chi Minh City Open University, Ho Chi Minh City, Vietnam

10.22059/ijms.2026.401093.677929

Abstract

This study investigates the interrelationships among free cash flow (FCF), agency costs (AC), financial leverage (DA), and financial performance (FP) in Vietnamese listed firms during 2019–2023, a period marked by heightened uncertainty due to the COVID-19 shock. Using firm-level panel data and Partial Least Squares Structural Equation Modeling (PLS-SEM), the study simultaneously examines direct effects, mediating mechanisms, and moderating roles. The results show that FCF has a positive and significant impact on FP and reduces both AC and DA. While AC does not exert a significant direct effect on FP and fails to mediate the FCF–FP relationship, DA has a consistently negative effect on performance and emerges as the dominant mediating channel through which FCF enhances FP. Although interaction terms involving firm size and firm age are statistically significant, their very small effect sizes indicate negligible moderating influence, suggesting broadly homogeneous leverage-related performance effects across firms. Overall, the findings extend Pecking Order Theory, partially support Trade-Off Theory, and challenge traditional agency-based predictions by demonstrating that financial leverage—rather than agency costs—constitutes the central mechanism linking free cash flow to firm performance in an emerging-market context.

Keywords

Free cash flow

Agency costs

Financial Leverage

Financial Performance

Vietnam

Subjects