1. Introduction:
In a general view, corporate governance includes legal, cultural and
institutional arrangements which determines the direction and
function of the companies. The elements which are present at the
scene are: shareholders and ownership structure, board of directors
and their compounds, company management who is guided by
managing director or higher manager and other beneficiaries who
may have effects on the company.
Governance system is Corporate considered as a monitoring
mechanism and controlling the finance and management behaviors.
And these systems will be developed in coordination with legal and
cultural system of each company, and its mechanism will be formed
according to these conditions. Most important components of the
system in the company are bound and non-bound members of the
board, their independence from the executive directors, presence or
absence of committees including audit committee and presence of
institutional investors. If these components and mechanisms are
applied well, then observe and control will be properly implemented.
Managers of private units in different situations, according to internal
and external factors of private unit and with attention to risk and
returns, we should select proper strategy for assets, liabilities,
revenues and expenditures. If the type of selected strategy in certain
position is suitable then there will be access to best strategy for
managing assets, liabilities, revenues and expenditures. Creating
balance in said factors are of particular importance. As deciding on
one will impact on the other. Meanwhile, entry and exit of the cash in
a private unit are the most fundamental issues that underlie many of

2. the decisions and judgments of investors, creditors and some other
major groups of financial information users.
Investors and creditors show interest to invest and give credit to
business units that have high operating cash flow. And avoid to invest
and give credit to those business units that do not have high
operating cash flow. Therefore those institutions that result of their
normal activities is negative cash flow, can`t finance their shortage of
funds from other activities just like activities of finance and
investment. Because, ability of an institution in increasing cash
through financing activities is related mostly to cash that gained from
free activities. In case, a company is not having sufficient cash to pay
the debt in maturity time, interest of shares and fulfillment of
obligations, then creditors and investors are not willing to invest in
the said company. For example, one of the loans main risks is
abnormal levels of cash flows as a result of early payment of loan
instalments. So risk of early payment is distributed equally between
gained loans. To increase the accuracy of prediction in cash currents,
corporate mechanisms will be verified from different directions. Some
of the managers, will determine their optimal level with balance
between benefits and cost of holding cash. In fact, managers will
manage their optimal level of cash with determination of importance
of the final cost and final interests, from holding cash. Thus, there is
an appropriate level of cash for managers, where management will
decide actively upon analyze of cost-benefit in relation to cash
keeping. Therefore with importance of free cash in performance of
the company, we became interested in doing a research in the said
field and do a research about a relation between free cash flow and
some of the corporate mechanisms for corporates that are members
in Tehran stock exchange.

3. Research background:
HARFORD and coworkers used a sample for 1872 corporates to
examine the relation between holding cash and corporate governance
structure. The result showed, corporates with more internal
governance and more institutional governance percentage have more
cash hold, but other corporates with higher quality in corporate
governance and bigger board of directors and more independent have
lesser cash hold.
LEE selected a sample containing 1061 companies, during 2001 - 2005
in five Asian countries (Malaysia, Philippine, India, Singapore and
Thailand) and then said: if board members act as corporate
governance role in Asian countries, so we can predict, corporates with
stronger management structure (more percentage of non-duty
members of the board and….), after controlling other factors, will
have lesser cash hold. Analysis started with test relation between
cash hold, board structure and management governance structure.
After controlling other significant factors of cash hold, it is resulted
that corporates with more share of non-duty managers in board,
different posts of general director and head of the board and smaller
board are having lesser cash hold.
GENI and coworkers in their research, verified the cash balance in
Japan, France, Germany and England. And in their study, used 3989
data of companies during 1983 to 2000.their finding showed legal
structure of the country and governance structure are having
important role in determination of cash hold deposit. They realized
that higher protection about shareholders has relation with lesser

4. cash. And concentration on governance is having negative effect on
remained cash.
GARSIA and coworkers, with using organized sample from stock
exchange corporates in Spain during 1995- 2001, searched about audit
quality effect on corporate`s cash balance. In this research, they used
the OZKAN adjusted model. Results of the said research show that
corporates with high accruals quality in comparing corporates with
low accruals quality, hold lower levels of cash balance. Findings show,
with increase in bank debt, cash balance will increase and those
companies which have higher cash flow, shall keep more cash.
AGHAEE and coworkers, searched about effective factors on keeping
cash balances in accepted corporates in Tehran stock exchange. Their
selected sample was consisted of 283 organizations and time period
for their study was from 2000-2005. Result of their research shows
that receivable accounts, net working capital, inventories and short
term debts are having negative effects on keeping cash balances,
respectively. On the other side, growth opportunities of corporate,
dividend, fluctuations in cash flows and net profit are the most
important factors which have positive factor on holding cash
balances. But there are no sufficient proves about negative effects of
long term debts and corporates size on keeping cash balances,
respectively.
TEHRANI and HESARZADE, paid survey about effect of free cash flows
and financing constraints on more investment and less investment in
120 listed corporates of Tehran stock exchange during time period of
2000-2006. Results of the research showed that there is a direct
relation between free and cash flows and more investment and in
statistical view, it is significant. Meanwhile, between financing

5. constraints and less investment in accepted corporates of Tehran
stock exchange, there is no significant relation.
Problem`s statement and research hypotheses:
Regulatory mechanisms of corporate governance, are important and
effective factors on free cash flows of corporates. How to employ free
cash flow is an important and opposite decision between
shareholders and managers. During economic growth of corporate, as
cash deposits grow, managers will decide, whether to distribute the
free cash among shareholders, or to be spend on internal
expenditure, or should be spend on employee`s study abroad or to
keep it as it is? Whether benefit seeking managers will choose to use
or keep the cash deposits, is not clear. Managers should compare
personal expenses of current expenditure with flexibility which comes
out from free cash flow. In addition, benefit seeking managers must
measure probability of profits excess on expenditures due to holding
more cash.in this context, institutional investors and non-duty
members, can have an important role in conducting free cash flow
reserves and with controlling the behavior of managers, can avoid the
profit excess on expenditures due to keeping free cash flow. And one
more thing, governance influence rate of government is another
effective factor on free cash flow. In Iran there are no plenty of
researches about relation of monitoring mechanism in corporate
governance and free cash flow of companies. Therefore the main goal
of this research is to verify the relation of some of corporate`s
governance mechanisms which is consisted of institutional investors
percentage, board`s non-duty members percentage and government
influence rate as independent variables and free cash flow as
dependent variable in Tehran stock exchange.

6. Theories of research:
1-There is a significant relationship between free cash flow and the
percentage of institutional investors in Tehran stock exchange.
2- There is a significant relationship between free cash flow and the
percentage of non-duty members of the board in Tehran stock
exchange.
3-There is a significant relationship between free cash flow and the
governance influence rate of government.
Method of research:
This research in case of goal is an applied study, and in case of
methodology is solidarity research of post events. In this research to
test the theories, they used multiple regression with model of
multivariate base.
This study has three theories. The free cash flow variable was used in
all the three theories. For the first and second hypotheses, each of
variables INSTOWN, institutional governance percentage and OUTD,
non-duty board members percentage, calculated separately. Then in
both the theories, the relationship between free cash flow INSTOWN,
institutional governance percentage and OUTD, non-duty board
members percentage, using Pearson`s solidarity test and regression
statistical model, have been studied. But for the third hypothesis, for
the variable GI, governance and influence rate of government, the
comparison of means to compare the distribution of a variable in

7. different groups were used. And data was analyzed. Then test of this
theory was examined by Pearson`s solidarity test and regression
statistical model. Time domain of this research was from 2007-2011.
Spatial domain was Tehran stock exchange.
Test of hypothesis:
First theory: there is a significant relationship between free cash flow
and the percentage of institutional investors in Tehran stock
exchange.
To verify the relation between FCF and INSTOWN, we use variance
analyze table:
Since PVALUE that means %21/7 is larger than  which is %5,
therefore in significant level of %5, the assumption :1H (there is
relation) is rejected and assumption  :H (no relation) is accepted.
It is concluded that in the significance level of %5, between free cash
flow opportunities (FCF) and the percentage of institutional
ownership (INSTOWN), there is no relationship. So there is no need of
regression underlying assumptions test. And we can`t find any
relation between these two variables of linear regression model, to be
significant in statistical case.
Second theory: there is a significant relationship between free cash
flow and non-duty members of the board in Tehran stock exchange.
Results from regression test to verify the relation of FCF and OUTD in
variance analyze table and regression equation is as follow:
For all the hypotheses of the study, error level of %5 (significant level
of %5= ) it means, confidence level is considered as %95.
Based on this test.

8. 1H Is rejected, whereas %pvalue
1H Is accepted, whereas %pvalue
Because the PVALUE, it means 001/0 is less than  which is %5, thus
in significant level  =%5, assuming  :H (lack of relation) is
rejected. And assumption of :1H (there is relation) is accepted.
And concluded that in significant level of %5, there is a relation
between free cash flow (FCF) and non-duty member percentage
(OUTD). Since the beta coefficient is negative (OUTD 0.663-), there is
an inverse relationship between free cash flow (FCF) and non-duty
members percentage (OUTD).
Third theory:
There is a significant relationship between free cash flow and
influence rate of government ownership.
The concluded result from regression test to examine the relation of
FCF and GI in the variance analyze table and regression equation is as
follow:
Because the PVALUE, it means 001/0 is less than  which is %5, thus
in significant level  =%5, assuming  :H (lack of relation) is
rejected. And assumption of :1H (there is relation) is accepted.
And concluded that in significant level of %5, there is a relation
between free cash flow (FCF) and influence rate of government
ownership (GI). Since the beta coefficient (GI 4.52) is positive, there is

9. a direct relationship between free cash flow (FCF) and influence rate
of government ownership (GI).
Summary of research results:
Summary of theories test results:

10. Interpretation
of results
Result of
statistical
test
Statistical
methods
Description
There is no
significant
relation
between free
cash flow and
institutional
investors
percentage
H
Assumption
is not
rejected
Solidarity
test and
linear
regression
First theory
There is
significant
relation
between free
cash flow and
non-duty
members
percentage
H
Assumption
is rejected
Solidarity
test and
linear
regression
Second theory
There is
significant
relation
between free
cash flow and
influence rate
of
government
ownership
H
Assumption
is rejected
Solidarity
test and
linear
regression
Third theory