Disaggregated Capital Expenditures

40 Pages Posted: 1 Apr 2015 Last revised: 20 Apr 2019

See all articles by Brooke Beyer

Brooke Beyer

Kansas State University

Don Herrmann

Oklahoma State University - Stillwater - School of Accounting

Eric T. Rapley

Colorado State University, Fort Collins - Department of Accounting

Date Written: April 2019

Abstract

Financial analysts and accounting regulators encourage companies to disclose the disaggregation of total capital expenditures (CAPX) into the portion of capital investment intended to sustain current performance (maintenance CAPX (MCAPX)), and the portion invested in new projects/assets to pursue additional opportunities (growth CAPX (GCAPX)). Using a hand-collected sample of voluntary disclosures of disaggregated CAPX, we first document that traditional estimates of the disaggregated components (MCAPX and GCAPX), using currently required financial statement disclosures, are inadequate proxies for the actual (disclosed) values of MCAPX and GCAPX. Specifically, we find that the estimation errors in the disaggregated variables are associated with future financial performance (i.e., changes in sales and earnings), suggesting that the information in the disaggregated disclosure is potentially useful in forecasting firm performance. We then examine whether analysts seem to use the disaggregated information in updating their forecasts and find that estimation errors in the disaggregated variables are associated with analyst forecast revisions of future sales and earnings per share, consistent with analysts incorporating the information in disaggregated CAPX into their forecasts. Our results provide evidence that disaggregated CAPX disclosure is superior to the currently required aggregate CAPX disclosure in explaining/forecasting firms’ future financial performance.

Keywords: Capital Expenditures; Disaggregation; Maintenance CAPX; Growth CAPX.

Suggested Citation

Beyer, Brooke and Herrmann, Don and Rapley, Eric T., Disaggregated Capital Expenditures (April 2019). Available at SSRN: https://ssrn.com/abstract=2587124 or http://dx.doi.org/10.2139/ssrn.2587124

Brooke Beyer (Contact Author)

Kansas State University ( email )

Manhattan, KS 66506
United States
7855325916 (Phone)

Don Herrmann

Oklahoma State University - Stillwater - School of Accounting ( email )

College of Business Administration
345 Business Building
Stillwater, OK 74078
United States

Eric T. Rapley

Colorado State University, Fort Collins - Department of Accounting ( email )

257 Rockwell Hall
Fort Collins, CO 80523
United States
970.491.7481 (Phone)

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