Do Capital Expenditures Influence Earnings Performance: Evidence from Loss-Making Firms
Accounting and Finance, 2020 https://doi.org/10.1111/acfi.12675
47 Pages Posted: 4 Mar 2021
Date Written: June 5, 2020
We examine the association between capital expenditures and near-term earnings performance for loss-making firms. Using a sample of 24,030 firm-year observations from 2006 to 2015, we find that loss-making firms show different patterns of capital expenditures than profit-making firms. Moreover, we find that capital expenditures of loss-making firms have a greater influence on the absolute value of near-term earnings performance. We also examine the effect of capital expenditures on stock compensation and find a positive association between them for profit-making firms but not for loss-making firms. Further, our results indicate that the negative association between capital expenditures and near-term earnings performance for loss-making firms is not conditional on the monitoring by institutional investors and creditors. Our findings contribute to the debate on capital expenditure accounting in loss-making firms.
Keywords: Capital expenditures, Loss-making firms, Investment, Near-term earnings performance
JEL Classification: M40; M41; M49
Suggested Citation: Suggested Citation