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Agency Problems and Capital Expenditure Announcements

Author

Listed:
  • Timothy J. Brailsford

    (University of Queensland)

  • Daniel Yeoh

    (Australian National University)

Abstract

This article examines the market valuation of announcements of new capital expenditure. Prior research suggests that the firm's growth opportunities and cash flow position condition the market response. This study jointly examines the role of growth and cash flow, and the interaction between them. Using a new data set of Australian firms that avoids problems associated with expectations models, the results are remarkably strong and support a positive association between growth opportunities and the market valuation, in addition to supporting the role of free cash flow. The findings have implications for the relationship between general investment information and stock prices.

Suggested Citation

  • Timothy J. Brailsford & Daniel Yeoh, 2004. "Agency Problems and Capital Expenditure Announcements," The Journal of Business, University of Chicago Press, vol. 77(2), pages 223-256, April.
    • Handle: RePEc:ucp:jnlbus:v:77:y:2004:i:2:p:223-256
    DOI: 10.1086/381274
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    Citations

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    Cited by:

    1. Etim Uwah, Uwem, 2019. "Capital Expenditure Decisions And Long Term Value Of The Firm: Evidence From Nigerian Manufacturing Companies," International Journal of Contemporary Accounting Issues-IJCAI (formerly International Journal of Accounting & Finance IJAF), The Institute of Chartered Accountants of Nigeria (ICAN), vol. 8(1), pages 152-169, June.
    2. Leonardo Fernandez, 2012. "Price Discovery, Investor Distraction and Analyst Recommendations Under Continuous Disclosure Requirements in Australia," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 1-2012, January-A.
    3. Sheng‐Syan Chen & Robin K. Chou & Shu‐Fen Chou, 2009. "The Impact of Investment Opportunities and Free Cash Flow on Financial Liberalization:A Cross‐Firm Analysis of Emerging Economies," Financial Management, Financial Management Association International, vol. 38(3), pages 543-566, September.
    4. Bahadir, S. Cem & Bharadwaj, Sundar & Parzen, Michael, 2009. "A meta-analysis of the determinants of organic sales growth," International Journal of Research in Marketing, Elsevier, vol. 26(4), pages 263-275.
    5. Shujahat Haider Hashmi & Munawar Hussain & Raja Muhammad Ahsan Ilyas & Muhammad Asif Khan, 2017. "Sensitivity analysis for the determinants of investment appraisal," The Audit Financiar journal, Chamber of Financial Auditors of Romania, vol. 15(148), pages 686-686.
    6. Brooke, Jesse & Oliver, Barry, 2005. "The source of abnormal returns from strategic alliance announcements," Pacific-Basin Finance Journal, Elsevier, vol. 13(2), pages 145-161, March.
    7. He, Jingbin & Ma, Xinru, 2023. "Is corporate social responsibility engagement influenced by nearby firms? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 86(C).
    8. Shou-Min Tsao & Wei-Hao Lien, 2013. "Family Management and Internationalization: The Impact on Firm Performance and Innovation," Management International Review, Springer, vol. 53(2), pages 189-213, April.
    9. Adriana S. Cordis & Chris Kirby, 2017. "Capital expenditures and firm performance: evidence from a cross†sectional analysis of stock returns," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(4), pages 1019-1042, December.
    10. Juniarti, 2022. "Market Reaction to Capital Expenditure: Evidence from Company in Bankruptcy Risk ," GATR Journals afr220, Global Academy of Training and Research (GATR) Enterprise.
    11. Jian, Ming & Lee, Kin Wai, 2011. "Does CEO reputation matter for capital investments?," Journal of Corporate Finance, Elsevier, vol. 17(4), pages 929-946, September.
    12. Charitou, Andreas & Karamanou, Irene & Lambertides, Neophytos, 2019. "Analysts to the rescue?," Journal of Corporate Finance, Elsevier, vol. 56(C), pages 108-128.
    13. Leonardo Fernandez, 2012. "Price Discovery, Investor Distraction and Analyst Recommendations Under Continuous Disclosure Requirements in Australia," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 3, July-Dece.
    14. Jianguo Chen & David Smith, 2024. "Disclosure policy choice, stock returns and information asymmetry: Evidence from capital expenditure announcements," Australian Journal of Management, Australian School of Business, vol. 49(2), pages 192-213, May.
    15. Saeed Akbar & Syed Zulfiqar Ali Shah & Issedeeq Saadi, 2008. "Stock market reaction to capital expenditure announcements by UK firms," Applied Financial Economics, Taylor & Francis Journals, vol. 18(8), pages 617-627.
    16. Fiaz Ahmad Sulehri & Muhammad Rizwan & Ismail Senturk, 2022. "The Impact Of Intangible Assets And Firm-Specific Factors On Cash Flows: An Empirical Analysis Of Public Firms Listed On The Pakistan Stock Exchange," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 11(3), pages 16-26.
    17. Ahmad, Muhammad Munir & Hunjra, Ahmed Imran & Taskin, Dilvin, 2023. "Do asymmetric information and leverage affect investment decisions?," The Quarterly Review of Economics and Finance, Elsevier, vol. 87(C), pages 337-345.
    18. Beatriz Mariano & Josep Tribó Giné, 2015. "Creditor Intervention, Investment, and Growth Opportunities," Journal of Financial Services Research, Springer;Western Finance Association, vol. 47(2), pages 203-228, April.
    19. Sabet, Amir H. & Agha, Mahmoud & Heaney, Richard, 2018. "Value of investment: Evidence from the oil and gas industry," Energy Economics, Elsevier, vol. 70(C), pages 190-204.
    20. Sabet, Amir H. & Heaney, Richard, 2016. "An event study analysis of oil and gas firm acreage and reserve acquisitions," Energy Economics, Elsevier, vol. 57(C), pages 215-227.

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