Can Capital Expenditures be Value Destroying?: An International Perspective
27 Pages Posted: 2 Oct 2012
Date Written: September 1, 2012
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: Suggested Citation