Abstract
AbstractThis paper examines the valuation of future potential capital spending and research and development expense (capital investment) in current market value of equity. The purpose of this study is to develop an option modelling technique which can be used by financial analysts to assist in measuring the current market value of future new capital spending and the persistence of the value of capital investment. A capital investment Delta is developed, using option pricing modelling, as an indicator of productive future capital investment. This study uses a sample of initial public offerings (IPOs), which went public during the years, 2004 through 2015. The metrics are computed at the end of the second year after going public and then regressed on the next year NASDAQ adjusted stock return. The results of the study indicate that productive future capital investment, as developed in the current study, is persistent and is significantly associated with a firm's future stock performance.
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