Abstract

This thesis presents a study about the role of ownership structure on the relationship between free cash flow and investment level in the insurance industry. The impact of ownership structure is one of the mechanisms of corporate governance, where different ownership structures lead to changes in corporate behavior and as a result, changes in corporate outputs. Therefore, it can be expected that ownership structure (diversity of owners) affects the relationship between free cash flow and the level of investment of companies.

In this thesis, first the effect of free cash flow on the level of investment was examined, then the effect of two variables, institutional ownership and managerial ownership, on the relationship between free cash flow and the level of investment was examined. For this purpose, ۱۶ private insurance companies licensed by the Central Insurance Agency of the Islamic Republic of Iran were examined over a ۱۰-year period (۱۳۹۳ to ۱۴۰۲).

Based on the multivariate regression method, the results showed that there is a significant and positive relationship between free cash flow and investment level. The results also indicate that institutional ownership affects the relationship between free cash flow and investment level in the insurance industry, and managerial ownership does not affect this relationship. This means that the higher a company's free cash flow (cash and funds left over after covering operating and investment costs), the more willing companies are to invest. In other words, having more internal financial resources increases the company's ability to invest. We also concluded that an increase (decrease) in institutional ownership increases (decreases) the sensitivity of investment to cash flow. In other words, increasing institutional ownership increases the company's willingness to invest free cash flows, and decreasing institutional ownership decreases the company's willingness to invest free cash flows. While this result was not achieved for managerial ownership.

In summary, the results indicate that in the Iranian insurance industry, the amount of investment by companies depends more on the volume of internal cash resources than on their composition or type of ownership.

Keywords: Free Cash Flow, Ownership Structure, the Level of Investment, Institutional Ownership, Managerial Ownership, Insurance Industry of Iran