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

See all articles by Sungsoo Kim

Sungsoo Kim

Rutgers Business School - Camden; University of Minnesota Duluth

Amitav Saha

School of Business, The University of Notre Dame Australia

Sudipta Bose

Discipline of Accounting and Finance, Newcastle Business School, The University of Newcastle, Sydney, Australia

Date Written: June 5, 2020

Abstract

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

Kim, Sungsoo and Saha, Amitav and Bose, Sudipta, Do Capital Expenditures Influence Earnings Performance: Evidence from Loss-Making Firms (June 5, 2020). Accounting and Finance, 2020 https://doi.org/10.1111/acfi.12675, Available at SSRN: https://ssrn.com/abstract=3619853

Sungsoo Kim

Rutgers Business School - Camden ( email )

227 Penn Street
Camden, NJ 08102
United States
856-225-6584 (Phone)

University of Minnesota Duluth ( email )

10 University Avenue
Duluth, MN 55812
United States

Amitav Saha

School of Business, The University of Notre Dame Australia ( email )

Sydney
Sydney, NSW 2000
Australia

Sudipta Bose (Contact Author)

Discipline of Accounting and Finance, Newcastle Business School, The University of Newcastle, Sydney, Australia ( email )

Sydney
Australia

HOME PAGE: http://www.newcastle.edu.au/profile/sudipta-bose

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