Capital Expenditure Decisions Research Articles

CAPITAL BUDGETING

The project talks about a capital budgeting and its methods including discounted cash flow, payback, and throughput analyses. The process involves analyzing a project’s cash inflows and outflows to determine whether the expected return meets a set benchmark, we are going to talk about how capital budgeting is also important for small and big companies to evaluate major projects and investments, such as new plants or equipment. In the present scenario the efficient allocation of capital resources is a most important function of project management. This function involves firm’s decision to invest its funds in long-term assets like plant, machinery land, building, equipment etc. These assets are extremely important to the firm because the organizational profits are derived from the use of its capital investment in assets which represent a long-term commitment of funds. The future development of an enterprise depends on the capital investment projects. These projects may be the replacement of existing capital assets which turns out to be less attractive to the firm or expansion of business for implementing new ideas and planning. Thus, long term investment decisions of an enterprise fall within the definition of project budgeting or capital expenditure decisions. These decisions are concerned with the acquisition of assets in which funds will be invested by an enterprise. The assets of business include long term assets and short-term assets. Long term assets will yield a return over a period of time whereas short term assets are those assets which are easily convertible into cash within one accounting period, normally a year. The long-term investment decision is known as project budgeting/capital budgeting and the short-term investment decision are identified as working capital management.

Ratio Analysis of Axis Bank

This report presents a thorough examination of AXIS Bank's financial performance utilizing ratio analysis as the primary tool. Ratio analysis offers a quantitative method to assess the bank's financial health and operational efficiency by comparing key financial metrics over time and against industry benchmarks. The analysis begins by evaluating AXIS Bank's current ratio, which measures the proportion of current assets to current liabilities. A higher current ratio indicates a greater ability to cover short-term obligations, suggesting a healthy liquidity position. Conversely, a lower ratio may raise concerns about liquidity risk. In the case of AXIS Bank, the current ratio analysis reveals a robust position, indicating a prudent allocation of resources towards current assets. Furthermore, the report explores the quick ratio, also known as the acid-test ratio, which provides a more stringent assessment of liquidity by excluding inventory from current assets. This ratio helps determine the bank's ability to meet short-term obligations without relying on inventory liquidation. Comparing the quick ratio with the current ratio provides additional insights into the composition of AXIS Bank's current assets and its liquidity management practices. Additionally, the analysis considers the fixed/worth ratio, which assesses the proportion of fixed assets financed by owner's equity. A higher fixed/worth ratio suggests greater reliance on equity financing for fixed asset investments, indicating a lower financial risk. Conversely, a lower ratio may signal higher leverage and potential financial vulnerability. Evaluating this ratio provides valuable insights into AXIS Bank's capital structure and risk management strategies. Furthermore, the report examines the cash flow statement to assess the bank's cash generation and utilization across operating, investing, and financing activities. Analyzing cash flow patterns helps identify trends in cash generation, liquidity management, and investment decisions. In the case of AXIS Bank, the analysis reveals a positive trend in cash generated from operating and financing activities, indicating healthy cash inflows. However, negative cash flow from investing activities warrants further investigation into the bank's investment strategies and capital expenditure decisions. Overall, this comprehensive analysis of AXIS Bank's financial ratios and cash flow dynamics provides valuable insights into the bank's financial position, liquidity management, and operational efficiency. The findings offer a basis for strategic decision-making and recommendations to optimize performance and ensure sustained growth and stability..

CAPITAL EXPENDITURE DECISIONS AND MARKET VALUE OF QUOTED FOOD AND BEVERAGES FIRMS IN NIGERIA

This study examined the relationship between capital expenditure decisions and market value of quoted food and beverages manufacturing firms in Nigeria. Secondary data obtained from 22 quoted food and beverage manufacturing firms from 2012 - 2022 obtained from the Nigerian Exchange Fact book and annual reports of the quoted food and beverage manufacturing firms. The study modeled market value as the dependent variables while capital expenditure decision was proxy using firms’ capital expenditure decision on equipment, buildings, human, maintenance, expansion and sustenance. Panel data methodology was employed while the fixed effects model was used as estimation technique at 5% level of significance. Fixed effects, random effects and pooled estimates were tested while the Hausman test was used to determine the best fit. The result show that the proxies of capital expenditure decision explained 94.4 percent variation in market value of quoted food and beverages manufacturing firms in Nigeria. The beta coefficient indicates that firms’ capital expenditure on sustenance contribute 0.97 percent, capital expenditure on expansion reduces market value by 0.006 percent, capital expenditure on plant leads to 8.9 percent increase in firms’ value, capital expenditure on human capital contributes 0.02 percent and capital expenditure on equipment reduced valuation of the firm by 0.01 percent. The model was judge significant based on f-statistic and probability value while the Durbin Watson found no autocorrelation among the variables. The study conclude that capital expenditure decision have significant effect on market value of quoted food and beverage manufacturing firms in Nigeria. We recommend that policies such as optimization of capital investment decision to increase value of the quoted firms.
 Keywords: Capital Expenditure Decisions, Valuation, Food and Beverage Manufacturing, Nigeria Firm Value Optimization.

The effect of life cycle stages on capital expenditures: evidence from an emerging market

PurposeThe purpose of the article is to examine the effect of life cycle stages on capital expenditures, using Borsa Istanbul-listed companies.Design/methodology/approachThe panel data estimation procedure was used as the primary method to test the hypothesis. The authors used four additional analyses to check the robustness of the results. The model was tested for endogeneity using the generalized method of moments (GMM) estimation. Quantile regression was utilized for the non-parametric test of the model. In the third robustness test, the sample was divided into two using financial constraints with the Size-Age (SA) Index proposed by Hadlock and Pierce (2010). The last analysis removed the global financial crisis (GFC) years from the sample.FindingsBorsa Istanbul-listed companies tend to invest less as they move forward in their life cycle stages. The results show that market capitalization, operating cash flow levels and leverage positively affect capital expenditure investments. The empirical evidence also revealed that cash holding levels have a negative effect on capital expenditure decisions. Robustness tests support the results.Practical implications The findings are potentially useful for investors and managers. Having the information that decreasing capital expenditures signals that the company is in the last stages of its life would be a sign for managers to improve their investment strategies to avoid getting out of business and survive. They need to find options and solutions to propel their companies back on a path of growth. Additionally, the same information could be vital for investors' investment decisions.Originality/valueThis paper contributes to the literature by providing evidence about the effect of life cycle stages on capital expenditures from an emerging market. To the best of the authors’ knowledge, it is the first paper to investigate empirically how moving forward in the life cycle stages affects capital expenditures in an emerging market.

Explaining penal momentum: Path dependence, prison population forecasting and the persistence of high incarceration rates in England and Wales

AbstractThis article seeks to explain the persistence of high incarceration rates in England and Wales. Building upon recent theoretical work on path dependence, we identify prison population forecasting as a poorly understood positive feedback mechanism that helps to determine the overall scale, scope and reach of the prison estate by connecting capital expenditure decisions with ‘business as usual’ planning cycles that assume considerable policy continuity with the past. We illustrate this point with reference to recent controversies over women's imprisonment where the everyday, routinised working practices of the penal system have played an important role in sustaining prison expansionism long after the initial conditions that fuelled the mid‐1990s prison boom have faded. Disrupting these self‐fulfilling logics will not be easy and we conclude this article with a call for a more deliberative democratic politics that confronts penal momentum and invites greater consideration of the many possible futures of penal policy.

Moderating Effect of Investment Opportunity in the Association of Market Response and Capital Expenditure

This study aims to reveal empirical evidence related to the market response to investment spending associated with investment opportunities, considering that investment opportunities is a crucial factor in capital expenditure decisions. This study used data from the Indonesia Stock Exchange in 2016-2021. The sample is only devoted to large-cap companies because this kind of company concerns investors more. The sample does not exclude the business sector, as in previous studies. Following previous research, investment opportunities are measured by Tobin's Q (TQ); a TQ of more than 1 indicates a higher investment opportunity and vice versa. The results show that the market responds negatively to investment spending, and investment opportunities moderate the market's response to investment spending. In addition, it was revealed that the industrial sector strengthened the influence of investment spending on market response. Therefore, management needs to consider investment opportunities before making investment expenditures to avoid getting caught up in overinvesting or under-investing, both of which are detrimental to the company. This study also adds empirical evidence in developing countries where the information gap between management and external parties (markets) is still vast.

The Effect of Capital Expenditure and Operational Expenditure on Investment Decision

The purpose of this research is determines the extent to which capital expenditure decisions are made by listed agricultural sector companies. Companies in Indonesia are related to the value of the company in the long run.The number of companies listed on the IDX during this period was 26, and the sample size used was 10. With the help of regression analysis, the findings reveal that capital expenditure and operational expenditure have significant relationship with investment decisions. it can be concluded that the sector companies listed on the Indonesia Stock Exchange for the period 3 years 2019-2021 capital expenditure variables have a significant positive effect on investment decisions, then operational variables have an insignificant negative effect on investment decisions It is recommended that the management of agricultural sector enterprises should ensure:holistic use of all techniques, exploring risks, real options analysis and growth and portfolio management techniques involving capital assets, in valuing capital investments before taking decision. it can be concluded that the sector companies listed on the Indonesia Stock Exchange for the period 3 years 2019-2021 capital expenditure variables have a significant positive effect on investment decisions, then operational variables have an insignificant negative effect on investment decisions.

Experimental Evidence for the Effects of Organizational Culture on Managers’ IT Capital Expenditure Decisions

The research question addressed in this study is whether, in the context of an information technology investment decision, a manager will decide differently in a situation where there is no information about a firm’s organizational culture compared with a situation where the firm’s organizational culture is known to be either bureaucratic or innovative. This paper’s experimental results show that a person will decide differently in response to knowledge of the firm’s organizational culture. Results also show that for the same types of organizational culture there are no significant differences in investment decisions among participants classified as being provincial, transnational, or foreign. Additional analysis shows that personal risk profile is a significant covariate for the group of participants classified as provincials but has no effect on decision-making for participants classified as foreigners and transnationals.

Investment, leverage and political risk: Evidence from project-level FDI

Does capital structure influence firms' FDI capital expenditure decisions into countries with varying degrees of political risk? We explore this question using a novel dataset that matches 10,000 unique outward foreign direct investment (OFDI) projects with 1135 distinct U.S. firms over the period 2003–2014. We find that capital expenditures allocated to FDI projects are significantly lower for highly leveraged firms, in particular for firms with low growth opportunities. Firms also commit lower capital amounts to investments located in countries characterized by higher political risk. Furthermore, leverage and political risk interact with one another in determining the financial commitment of the FDI, with leverage exerting a significantly stronger negative effect on capital expenditures in countries where political risk is elevated. Our findings are consistent with the monitoring role of debt in curbing exposure to political risk in multinational firms' foreign operations, and corroborate the disciplinary role of leverage on firms' investment decisions.

A Case Study of Capital Expenditure Decision in a Public Hospital:

A Case Study of Capital Expenditure Decision in a Public Hospital:

Risk Management in Waqf Institutions: A Preliminary Study

Modern management practice has put greater emphasize on the principles of accountability and transparency. Along with the revival of Islamic institutions, there are call by the stakeholder for management of waqf institutions to adopt modern management practice to improve their efficiency in managing waqf asset. As part of good governance and best practices of waqf institutions, management of risk is fundamental to the proper functioning of any institution including waqf to ensure the accountability of mutawalli (waqf manager) and transparency of the management. Studies on risk management practices on Islamic institution indicate that risk come across in many different ways; financial, personnel, program and capital expenditure decisions due to interactions with economic, political and social environments. However, the dissimilarity of management practices of waqf asset could be due to the absence of risk management function for waqf institutions. This paper aims at exploring the major themes that constitute the basis of the discussion on accountability in waqf institutions. In doing this, the theoretical underpinnings and the existing research relating to waqf investment and its risk management practice are examined.

Using Firm-Level Favoritism to Better Understand the External Financing and Capital Expenditure Anomalies

Prior literature documents a positive (negative) relation between past (future) stock returns and both external financing and capital expenditures. There has been much debate in the literature regarding the mechanisms driving these relations. In this study, we employ both a stock’s extreme return momentum and extreme trading volume to capture firm-level overpricing (underpricing) due to investor favoritism (neglect). We find that favoritism (neglect) is positively (negatively) associated with external financing decisions, and that the previously documented negative association between external financing and future stock returns is more pronounced in periods of favoritism. In contrast, after controlling for external financing, the positive (negative) association between favoritism (neglect) and capital expenditure decisions is attenuated, and we do not find the previously documented negative relation between capital expenditures and future stock returns. These findings suggest that financing decisions, but not capital expenditure decisions, are associated with managers’ exploitation of investor mispricing.

CAPITAL EXPENDITURE DECISIONS: A STUDY OF MALAYSIAN LISTED COMPANIES USING AN ORDERED LOGISTIC REGRESSION ANALYSIS

Capital expenditure (capex) decisions have been extensively studied except in developing countries (Mansor and Hamidi, 2008). Capex implicitly affects institutional aggregate demand, gross national product and business cycles. This research focuses on the capex decisions by Malaysian public listed companies (PLCs) between the years 2002 to 2006. Using the Pecking Order Hypothesis (POH) and Managerial Hypothesis (MH) frameworks, four independent variables are examined. These are (i) internal cash flows (ICF); (ii) Insider Ownership (I_O); (iii) Investment Opportunities (IOP); and (iv) the interaction effects of the variables. In addition, sales revenue is used as a control variable. Both hypotheses predict a positive effect of (IFC) on capex. However, their arguments differ in relation to the effects of (I_O) on capex. MH argues for a negative relationship but POH proposes no effect between the two. POH suggests a positive effect of (IOP) on capex whereas MH predicts no relationship between them. Using a pool Ordered Logistic Regression (OLR) model, capex is categorised into five ordinal categories and the control variable is divided into four groups, which are ranked to capture the variability of the capex. The result of this study shows that the (ICF) has a positive and significant effect on capex, and this finding supports both studied hypothesis. However, (I_O) and (IOP) show a negative and significant effect on capex. The study also found that there is a conflict of interest between managers and shareholders base on the negative coefficient of (I_O). This finding is consistent with Kim (2006) and supports the MH. This study provides mixed-support for the two hypotheses and reveals interesting characteristics with regards to the managerial style in Malaysian PLCs.Keywords: capital expenditure, managerial style, Malaysian public-listed companies, ordered logistic regression, group effect

Convertible Bond Issue Announcement Effect: Investment Opportunities and Market Reaction Perspective

This study examines the announcement effect of convertible bond issue in Korea where the issuance of convertible bonds is increasing rapidly. We find that abnormal stock returns are positive for the firms with unusual high trading volume using a sample of listed firms in Korea Stock Exchange during 2000-2015. Moreover, we show that unusual high volume around convertibles issue announcement has positive correlation with capital expenditure when firm has valuable investment opportunities. Therefore, more favorable announcement returns are driven by capital expenditure decisions and the quality of investment opportunities. In the same sense, the impact of cash flow also depends on the issuer’s quality of investment opportunities. Additionally, we confirm that issuing convertibles has negative signaling effect that stock of issuer is overvalued, and the issuer’s volatility has negative impact around announcement date.

Value Creation Thinking: Life-Cycle Reviews (Presentation Slides)

Life-Cycle Reviews would improve management/board capital expenditure decisions and fundamentally upgrade investor communications. The key is a reality-based analysis of the firm's major business units grounded in the life-cycle framework. The focus is on why business-unit reinvestment should create value in the future. This PowerPoint presentation expands upon the ideas presented in my book, Value Creation Thinking. The book website, Value Creation Thinking dot com, contains a % Future scorecard for 1,000 U.S. industrial firms, updated quarterly. The % Future metric uses an estimate of the wind-down value of the firm's existing assets in order to derive the implied value of the firm's future investments, expressed as a percent of the total firm value. As part of a Life-Cycle Review, the % Future metric helps pinpoint, based on current stock prices, the market's assessment of the firm's position on the life cycle.

D&O Insurance and Corporate Investment Efficiency *

Abstract This paper investigates the effect of directors and officers liability insurance (D&O insurance) on firm investment behaviour. Under the Chinese institutional environment, we analyse the relationship between D&O insurance and firms’ capital expenditure decisions. We find that compared with firms without D&O insurance, firms with D&O insurance will invest more with free cash flow and that their investment efficiency decreases. We get the same findings when we compare the investment behaviour of the same company between a period with D&O insurance and a period without D&O insurance. Our findings imply that improving the effect of D&O insurance on corporate governance should rely on the development of minority shareholder protection under the existing institutional environment.

The Timing of Asset Purchases to Achieve Earnings Thresholds

ABSTRACT This study examines whether managers use capital investment decisions, and the resulting depreciation expense, to achieve quarterly earnings thresholds. We also address whether these actions merely facilitate short-term earnings management or whether firms may trade off investment decisions to deliver earnings. We posit that managers may view capital expenditures as an alternative for earnings considerations because of the process for capital expenditure decision making and the accounting for these investments. Our findings suggest that managers use discretion over capital expenditures to achieve two well-documented earnings thresholds, but that these decisions largely reverse in the following quarter. We document the deferral of capital expenditures to avoid depreciation for industries where the median useful life averages approximately seven years. Cross-sectional tests also suggest that the use of capital expenditures for achieving thresholds varies depending upon the firm's capital intensity, remaining book value of assets, operating cash flow constraints, CEO horizon, and fiscal quarter. Data Availability: Data are available from the authors upon request.

Dividends, Debt and Investment: Impact on Stock Prices—Evidence from India

Using a generalised version of Rees ( 1997 ) model, the study empirically determines the extent to which market prices are supported by corporate financial variables (dividend payout, debt levels and investment expenditure) for a set of Indian listed companies (CNX 100) over a 10 year period. The results of the study suggest that earnings distributed as dividends have a greater impact on firm value than do earnings retained within the firm confirming the signalling effect of dividend policy. The study also finds that total debt (financing decision) is a signal of value for the Indian dataset examined. The study, however, fails to provide any support for investment (capital) expenditure decisions in explaining market prices in case of Indian dataset examined. The study further segments the dataset on the basis of average ROE (return on equity) to determine the segments of the sample for which the dividend signalling is stronger. The results reveal that in case of companies exhibiting extreme return on equity (due to significant transitory component in earnings), the value impact of dividends and/or book value is greater than that of retained earnings.

Testing FMCG innovations: experimental real store versus virtual

Purpose – In order to cope with the challenge of developing successful fast moving consumer goods (FMCG) innovations, market research vendors offer several methodologies to test concepts. The purpose of this article is to examine the discrepancy between the well-established experimental real store methodology and the most recent of these alternative methodologies that is the virtual store. Design/methodology/approach – A parallel testing of a new adult cereal was conducted in France with 200 shoppers in each store. Findings – Results show that all attitudinal measurements are similar in terms of cognition and conation, but affect and behavior cannot be compared across both methodologies. In conclusion, virtual store testing is a new method that does not exactly fit with one of the previous. Research limitations/implications – The study is limited to a single product and should be generalized to more product categories. Practical implications – Virtual store should be used carefully in order to take capital expenditure decisions. It generates different attitudes and behaviors, but more research is needed in order to debate on predictability. Originality/value – With the emergence of virtual stores to test FMCG innovations, this paper is of high value for practitioners who have to proceed to several tests, with different objectives, before a product launch.

Management Forecast Quality and Capital Investment Decisions

ABSTRACTCorporate investment decisions require managers to forecast expected future cash flows from potential investments. Although these forecasts are a critical component of successful investing, they are not directly observable by external stakeholders. In this study, we investigate whether the quality of managers' externally reported earnings forecasts can be used to infer the quality of their corporate investment decisions. Relying on the intuition that managers draw on similar skills when generating external earnings forecasts and internal payoff forecasts for their investment decisions, we predict that managers with higher quality external earnings forecasts make better investment decisions. Consistent with our prediction, we find that forecasting quality is positively associated with the quality of both acquisition and capital expenditure decisions. Our evidence suggests that externally observed forecasting quality can be used to infer the quality of capital budgeting decisions within firms.JEL Classifications: D83, G31, M41Data Availability: Data are available from public sources identified in the paper.