Capital Investment Expenditures Research Articles

The Market Valuation of Environmental Capital Expenditures by Pulp and Paper Companies

The objective of this study is to examine the market valuation of environmental capital expenditure investment related to pollution abatement in the pulp and paper industry. The total environmental capital expenditure of $8.7 billion by our sample firms during 1989–2000 supports the focus on this industry. In order to be capitalized, an asset should be associated with future economic benefits. The existing environmental literature suggests that investors condition their evaluation of the future economic benefits arising from environmental capital expenditure on an assessment of the firms' environmental performance. This literature predicts the emergence of two environmental stereotypes: low-polluting firms that overcomply with existing environmental regulations, and high-polluting firms that just meet minimal environmental requirements. Our valuation evidence indicates that there are incremental economic benefits associated with environmental capital expenditure investment by low-polluting firms but not high-polluting firms. We also find that investors use environmental performance information to assess unbooked environmental liabilities, which we interpret to represent the future abatement spending obligations of high-polluting firms in the pulp and paper industry. We estimate average unbooked liabilities of $560 million for high-polluting firms, or 16.6 percent of market capitalization.

Corporate Groups, Capital Investments and Stock Returns in Japan

This paper presents evidence that suggests that in Japan, corporate ownership structure affects the relation between capital investment expenditures and firm performance. Specifically, there is a negative relation between capital expenditures and subsequent risk-adjusted returns amongst keiretsu firms, which have a strong banking relationship, but a positive relation amongst independent firms. There is no relation between these returns and financial constraints for keiretsu firms. However, the positive relation between capital investments and stock returns for independent firms is strongest for those firms that have the lowest cash flows, and are thus likely to be the most financially constrained.

The impact of cash flow volatility on discretionary investment and the costs of debt and equity financing

We show that higher cash flow volatility is associated with lower average levels of investment in capital expenditures, R&D, and advertising. This association suggests that firms do not use external capital markets to fully cover cash flow shortfalls but rather permanently forgo investment. Cash flow volatility also is associated with higher costs of accessing external capital. Moreover, these higher costs, as measured by some proxies, imply a greater sensitivity of investment to cash flow volatility. Thus, cash flow volatility not only increases the likelihood that a firm will need to access capital markets, it also increases the costs of doing so.

Changing Inter-Firm Relations in the European Automotive Industry

This article explores the extent to which the benefits of new forms of inter-firm partnership within the European automotive industry have been shared between assemblers and component producers. It first considers the changing nature of the buyer-supplier relationship from the viewpoint of different parties and as part of a process of restructuring within the filiere. Then it documents patterns of performance, comparing samples of five European vehicle assemblers and ten component firms from 1987 to 1996. Evidence is presented on R&D and capital investment expenditures, inventory levels and work-inprogress, and profitability. It is concluded that lead- ing component manufacturers proved more resilient and adaptable than the assemblers during the early 1990s. This is explained in terms of the position of these system integrators with respect to their own suppliers, and the differing sectoral and geographical configurations of assembly and leading component firms.

The Impact of Cash Flow Volatility on Discretionary Investment and the Costs of Debt and Equity Financing

We document that cash flow volatility is associated with lower levels of investment in capital expenditures, R&D, and advertising. Thus, firms do not turn to external capital markets to fully cover cash-flow short falls. Consistent with this conclusion, we document that the sensitivity of investment to cash flow volatility is greater for firms with higher costs of capital market access. In addition, cash flow and earnings volatility are associated with these higher costs. Thus, volatility not only increases the likelihood that a firm will need to access capital markets, it also increases the costs of doing so.

Using the pollution abatement costs and expenditures micro data for descriptive and analytic research 1

The Pollution Abatement Costs and Expenditures survey (PACE) is an annual survey of manu­ facturing establishment's operating costs and capital investment expenditures for pollution abatement purposes. This paper provides a description and evaluation of the PACE micro data available at the Center for Economic Studies (CES). This paper provides an overview of the survey, how the sample is drawn, how the survey questionnaire has changed over time, an assessment of the data quality, and suggestions for the use of the data, as well as its limitations. This paper also discusses the advantages of using the micro data for descriptive and analytic research when integrated with economic data from the US Bureau of the Census and emissions data from the US Environmental Protection Agency. Examples of recent and analytic research are cited throughout. The US Bureau of the Census (Bureau) publishes annual data on pollution abate­ ment costs and expenditures by US manufacturing plants, based on the Pollution Abatement Costs and Expenditures survey (PACE). These aggregate data have been used for descriptive and analytic purposes at the industry or higher level. The trends in pollution abatement capital expenditures and operating costs for selected two-digit industries are reported in the annual Environmental Quality. Aggregate pollution abatement data have been used to examine economy wide and industry issues, including the relationship between the cost of pollution regulation and eco­ nomic growth [10], productivity [2,4,9,19], plant location [1], input factor shares, plant size, and market share [16], and competitiveness and international trade [7]. While aggregation reduces the complexity of analytic work, it provides little insight on the pollution prevention costs and opportunities within an industry. If the subject of interest is firm (or plant) behavior, analysis on macro data can be limited in usefulness due to aggregation bias. That is, the phenomena under study may be misrepresented at the aggregate level. The use of aggregate data to examine firm or establishment level responses requires that the 'representative • The opinions and conclusions herein are those of the author and do not necessarily represent those of the US Bureau of the Census or its Staff. I thank Stephen Andrews, Elinor Champion, and Gretchen Dickson for providing historic information and suggestions on earlier drafts. I am solely responsible for any remaining errors.

Do Takeover Targets Overinvest?

I examine the capital expenditures of a sample of 700 takeover targets and firms that went private over the period 1972-1987. For the complete sample, I do not find evidence that takeover targets increase their capital expenditures over the four-year period before the acquisition or that they overinvest in capital expenditures relative to several benchmarks. Subsample results provide some evidence of overinvestment in oil and gas firms and large firms. There is no evidence of overinvestment, however, for firms acquired in a hostile takeover or firms that went private. In general, these results are not consistent with the conjecture that takeovers are motivated by the need to reduce excess investment in capital expenditures in target firms. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Capital Formation in the USSR, 1959-1974: An Econometric Investigation of Bureaucratic Intervention in the Process of Capital Construction

JN their analysis of the Soviet economy, Western economists have often stressed the degree to which this is a politicized economic system, one in which the allocation of factor inputs and intermediate materials is subject to intervention by State and Party bureaucracies. Such intervention may serve to enforce enterprise compliance with official plans or to implement a centralized decision to depart from those plans. In the effort to construct a macroeconometric model of the Soviet Union, the author and others have attempted to partition what we observe in Soviet data into three categories: (1) technological regularity, (2) institutional or bureaucratic regularity, and (3) centralized intervention. This article represents a case study of the application of this econometric methodology to a major component of the Soviet economy, the phasing of capital investment expenditures into operative fixed capital. II. The Specification of Capital Formation in the Soviet Economy