Can Capital Expenditures be Value Destroying?: An International Perspective

27 Pages Posted: 2 Oct 2012

See all articles by Ebru Reis

Ebru Reis

Istanbul Bilgi University

Leonard Rosenthal

Bentley University - Department of Finance

Date Written: September 1, 2012

Abstract

We look at the effect of capital expenditures on firm performance in an international context. We find that increases in capital expenditures increase ROA and Firm Q but only up to a certain point, after which value is destroyed. This is especially true for U.S. firms and continental European companies, but less so for U. K. firms over the period 2003 through 2011. Firms with high free cash flow destroy value more. In the U.S. and U.K., high free cash flow in conjunction with excessive CAPEX is value decreasing.

Keywords: capital expenditures, investment, firm performance

JEL Classification: G31, G32, G34

Suggested Citation

Reis, Ebru and Rosenthal, Leonard, Can Capital Expenditures be Value Destroying?: An International Perspective (September 1, 2012). Midwest Finance Association 2013 Annual Meeting Paper, Available at SSRN: https://ssrn.com/abstract=2146217 or http://dx.doi.org/10.2139/ssrn.2146217

Ebru Reis (Contact Author)

Istanbul Bilgi University ( email )

Eski Silahtarağa Elektrik Santralı
Silahtarağa Mah. Kazım Karabekir Cad. No: 1 Eyüp
Istanbul, 34060
Turkey

Leonard Rosenthal

Bentley University - Department of Finance ( email )

175 Forest Street
Waltham, MA 02154
United States

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