The Economic Impact of Capital Expenditures: Environmental Regulatory Delay as a Source of Competitive Advantage?

27 Pages Posted: 27 Feb 2013

See all articles by Carolyn G. Wirth

Carolyn G. Wirth

Massey University - School of Economics and Finance

Jing Chi

Massey University - School of Economics and Finance

Martin R. Young

Massey University - School of Economics and Finance

Date Written: January/February 2013

Abstract

This study tests the proposal that by undertaking voluntary capital expenditures that are subject to lengthy environmental regulatory delays, listed companies can gain a competitive advantage. The stock market is found to react positively to new capital expenditure announcements when projects are expected to experience long delays in obtaining environmental regulatory approval. Two sources of potential competitive advantage are firm learning and first mover advantages. Lengthy delays in regulatory processes and high compliance costs incurred for environmentally‐sensitive projects may allow firms opportunities to develop specialised capabilities and/or to deter industry competitors and new entrants, resulting in greater expected project NPVs. The findings also underscore the importance of non‐financial environmental information to investors in their assessment of firm value.

Keywords: regulatory delay, capital investments, competitive advantage, shareholder wealth creation, market valuation, environmental regulation, compliance costs, non‐financial information, strategy, New Zealand

Suggested Citation

Wirth, Carolyn G. and Chi, Jing and Young, Martin R., The Economic Impact of Capital Expenditures: Environmental Regulatory Delay as a Source of Competitive Advantage? (January/February 2013). Journal of Business Finance & Accounting, Vol. 40, Issue 1-2, pp. 115-141, 2013. Available at SSRN: https://ssrn.com/abstract=2225665 or http://dx.doi.org/10.1111/jbfa.12009

Carolyn G. Wirth (Contact Author)

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North, 4442
New Zealand

Jing Chi

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North,, 4442
New Zealand
+64 6 3569099 Ext. 84048 (Phone)
+64 6 350 5651 (Fax)

Martin R. Young

Massey University - School of Economics and Finance ( email )

Private Bag 11222
Palmerston North, 4442
New Zealand

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