This paper investigates the extent of over-investment of free cash flow at the firm level. Using an accounting-based framework, it measures free cash flow and over-investment, finding evidence that over-investment is concentrated in firms with high levels of free cash flow, consistent with agency cost theories. The study also examines whether firm governance structures influence over-investment. It suggests that certain structures, such as the presence of activist shareholders, may reduce over-investment. The paper explores why firms invest when they have free cash flow. Theoretically, investment should not be related to internal cash flows, but research shows a positive relationship between investment and cash flow. Two interpretations exist: one is an agency problem where managers waste cash, and the other is due to capital market imperfections. This paper uses accounting information to better measure free cash flow and over-investment, providing large sample evidence of over-investment. Prior studies have found excessive investment in firms with large cash windfalls, and that cash-rich firms are more likely to make acquisitions with poor performance. This paper extends these findings, showing that over-investment is a systematic phenomenon across all investment types. The empirical analysis measures free cash flow and over-investment using an accounting framework. Free cash flow is defined as cash beyond what is needed to maintain assets and finance new investments. Over-investment is defined as investment beyond what is needed for maintenance and positive NPV projects. The paper finds a positive association between over-investment and free cash flow for firms with positive free cash flow.This paper investigates the extent of over-investment of free cash flow at the firm level. Using an accounting-based framework, it measures free cash flow and over-investment, finding evidence that over-investment is concentrated in firms with high levels of free cash flow, consistent with agency cost theories. The study also examines whether firm governance structures influence over-investment. It suggests that certain structures, such as the presence of activist shareholders, may reduce over-investment. The paper explores why firms invest when they have free cash flow. Theoretically, investment should not be related to internal cash flows, but research shows a positive relationship between investment and cash flow. Two interpretations exist: one is an agency problem where managers waste cash, and the other is due to capital market imperfections. This paper uses accounting information to better measure free cash flow and over-investment, providing large sample evidence of over-investment. Prior studies have found excessive investment in firms with large cash windfalls, and that cash-rich firms are more likely to make acquisitions with poor performance. This paper extends these findings, showing that over-investment is a systematic phenomenon across all investment types. The empirical analysis measures free cash flow and over-investment using an accounting framework. Free cash flow is defined as cash beyond what is needed to maintain assets and finance new investments. Over-investment is defined as investment beyond what is needed for maintenance and positive NPV projects. The paper finds a positive association between over-investment and free cash flow for firms with positive free cash flow.