Capital Expenditure and Future Firm Performance: Evidence from Firms Listed on the Stock Exchange of Thailand

Abstract

Abstract: Purpose – Capital expenditure reflects a company's investment in long-term assets expected to generate value for shareholders over time. Such expenses mostly expect to improve a company's future performance. This research aims to explore the relationship between capital expenditure and future firm performance. Design/methodology/approach –A sample (n=475) of registered companies listed on the stock exchange of Thai (SET) from 2000-2016 was selected. The time period selected for this research allows the researchers to analyze the relationship during the period of economic growth and stability. Secondary data was harvested from the Thomson Reuters Datastream database. Findings – A regression analysis showed a negative relationship between capital expenditure and future firm performance, as measured by return on assets (ROA) and dividends. Notably, this negative relationship was found to be statistically significant across the board, first for all companies and second for a unique subset of larger companies. Originality/value - Such findings go against general expectations. Subsequently, the study has implications for general practice, investment, and the academe.In particular, it sheds light on the potential impact of agency on investment expenses. Practically, registered SET companies can use this insight to make informed investment decisions; investors to make investment decisions, and lenders to make lending decisions. Overall, this research provides value for various stakeholders across financial exchanges.