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Book part
Publication date: 18 September 2017

Carol MacPhail, Riza Emekter and Benjamas Jirasakuldech

Bonus depreciation was enacted by the United States Congress and signed into law in 2002 largely in response to the economic malaise that engulfed the U.S. economy after the…

Abstract

Bonus depreciation was enacted by the United States Congress and signed into law in 2002 largely in response to the economic malaise that engulfed the U.S. economy after the September 11, 2001 terrorist attacks. We investigate whether bonus depreciation, a capital asset expensing allowance under the U.S. federal income tax code, impacts the level of business investment in property, plant, and equipment in the time periods that followed 9-11 in comparison to other earlier time periods. Based on the empirical evidence, the bonus depreciation policy has a positive effect on capital expenditures only in the period in which this policy was legislatively anticipated, specifically the period spanning the last quarter of 2001 and the first quarter of 2002. Otherwise, we find no significant increase in capital expenditures during the period that this special depreciation provision policy is initially in place from 2002 to 2005. Although bonus depreciation is re-enacted in response to the fiscal distress and recession that began in 2007, capital expenditures actually decline during the recovery era, a period following the post-2008 subprime mortgage crisis. Though Congress continues to temporarily re-enact bonus depreciation on an annual basis through December 31, 2014, there is no strong evidence that capital investment is positively impacted. Instead, the empirical results show that factors that positively affect the level of companies’ capital expenditures include capital intensity, cost of capital, amount of cash holdings, changes in sales and loans. Our empirical results invite the question of Congress’ intended goal in re-instating bonus depreciation for 2015 through 2019.

Details

Advances in Taxation
Type: Book
ISBN: 978-1-78714-524-5

Keywords

Article
Publication date: 1 November 2006

Ching‐Hai Jiang, Hsiang‐Lan Chen and Yen‐Sheng Huang

The purpose of this paper is to examine the relationship between capital expenditures and corporate earnings for 357 manufacturing firms listed on the Taiwan Stock Exchange over…

1940

Abstract

Purpose

The purpose of this paper is to examine the relationship between capital expenditures and corporate earnings for 357 manufacturing firms listed on the Taiwan Stock Exchange over the sample period 1992‐2002.

Design/methodology/approach

The sample period of 11 years is divided into capital investment period and performance period. The sample firms are first grouped into eight portfolios ranked by capital investment ratio estimated from the investment period. Corporate earnings in the performance period for the eight portfolios are examined to see if any positive association exists. Regressions are then estimated to test the relationship between capital expenditures and corporate earnings.

Findings

The results indicate a significantly positive association between capital expenditures and future corporate earnings even after controlling for current corporate earnings.

Practical implications

The results indicate that the unexpected announcements of capital expenditures are good news for investors in the investment practice.

Originality/value

Previous studies on the relationship between capital expenditures and corporate earnings are based mainly on developed countries. Empirical evidence from the manufacturing firms listed on the Taiwan Stock Exchange would provide further insights regarding this important issue.

Details

Managerial Finance, vol. 32 no. 11
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 25 February 2014

Antje Schimke and Thomas Brenner

This paper aims to examine the short-term structure of the impact of R&D investments on turnover growth, indicating differences between tangible and intangible investments. The…

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Abstract

Purpose

This paper aims to examine the short-term structure of the impact of R&D investments on turnover growth, indicating differences between tangible and intangible investments. The main questions are whether R&D and capital investments accompany firms' growth in the subsequent periods and how this relationship depends on other characteristics of the firms, such as size and industry. In addition, the authors study the relationship between R&D investments and the autocorrelation dynamics of firm growth.

Design/methodology/approach

The paper uses the European Industrial R&D Investment Scoreboard as data source. This data source includes 1,000 European companies with information on employees, turnover, sector affiliation and details on capital expenditure and R&D expenditure.

Findings

The authors find that R&D activities have, on average, a positive effect on turnover growth, while capital investments show both, positive and negative, relationships with firm growth. The relationship and its temporal structure strongly depend on firm size and industry affiliation as well as whether investments are considered as one-time or permanent activities.

Originality/value

Usually, the impacts of firm characteristics on firm growth are studied without explicitly considering time. Firm characteristics and firm growth are usually measured and examined at the same point in time. In contrast, the study will focus on the short-term structure of the influence of firm characteristics on turnover growth, especially the impact of R&D investments.

Details

Studies in Economics and Finance, vol. 31 no. 1
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 1 August 2001

Sungsoo Kim

Notes that although previous research has found capital expenditure to be value relevant, there has been no direct evidence that it has a positive linear association with future…

685

Abstract

Notes that although previous research has found capital expenditure to be value relevant, there has been no direct evidence that it has a positive linear association with future earnings. Uses 1976‐1989 data from a sample of US manufacturing firms to examine this link and finds that firms do not systematically invest in earnings increasing projects. Shows that firms without future losses (“winners”) had a positive association between capital expenditure and future earnings but those with losses (“losers”) had a negative one; and that if losses are excluded, capital expenditure generally gives positive information about future earnings. Considers consistency with other research, the limitations of the study and avenues for further research.

Details

Managerial Finance, vol. 27 no. 8
Type: Research Article
ISSN: 0307-4358

Keywords

Open Access
Article
Publication date: 16 August 2021

Mattias Haraldsson

The aim of this paper is to explore whether and how external, political, financial and governance factors influence capital expenditure deviations in the Swedish municipal water…

1506

Abstract

Purpose

The aim of this paper is to explore whether and how external, political, financial and governance factors influence capital expenditure deviations in the Swedish municipal water and sewerage sector and to capture the consequences of municipal organisational fragmentation.

Design/methodology/approach

Panel data analysis of 238 municipalities and 1,190 observations of capital expenditure deviations over five years (2013–2017).

Findings

Apart from a low overall on average execution rate of 69%, the Swedish municipal water and sewerage sector seems generally sensitive to external stakeholder pressure for budget compliance, but not to the political power situation. Further, political signalling incentives generally do not influence capital expenditure deviations in the contexts of municipal corporations and cooperations, which supports the idea that these governance forms insulate the organisation from general stakeholder pressure and political control.

Practical implications

The practical implication is that large and constant capital expenditure deviations call for change in regulation and governance of the municipal sector. However, in countries such as Sweden, where externalising services to municipal corporations and cooperations is significant, this discussion needs to address the consolidated level of the municipality. Otherwise, a large share of the investment budget will be unscrutinised. More closely related to the Swedish water and sewerage sector, the risks associated with a constantly low execution rate should be analysed and addressed.

Originality/value

First, this paper contributes to the knowledge of aggregated capital expenditure deviations in general and specifically within the municipal water and sewerage sector. Second, analysing the municipal governance landscape adds further insights and suggestions on why budget performance varies. The results especially highlight that the governance forms of corporations and cooperations change the relation to political signalling incentives.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 34 no. 6
Type: Research Article
ISSN: 1096-3367

Keywords

Article
Publication date: 1 May 1987

1.1 What Are Accounts For? Overview The purpose of accounts is to reveal performance in the conduct of a business or other activity concerned with use of economic resources (e.g…

Abstract

1.1 What Are Accounts For? Overview The purpose of accounts is to reveal performance in the conduct of a business or other activity concerned with use of economic resources (e.g. a club). It is thus a matter of stewardship. Although, like economics, it is necessary in accounting to use money as a measure of performance, it is concerned with the individual organisation rather than with economic phenomena as a whole.

Details

Management Decision, vol. 25 no. 5
Type: Research Article
ISSN: 0025-1747

Article
Publication date: 30 September 2019

Richard A. Lord, Yoshie Saito, Joseph R. Nicholson and Michael T. Dugan

The purpose of this paper is to examine the relationship of CEO compensation plans and the risk of managerial equity portfolios with the extent of strategic investments in…

Abstract

Purpose

The purpose of this paper is to examine the relationship of CEO compensation plans and the risk of managerial equity portfolios with the extent of strategic investments in advertising, capital expenditures and research and development (R&D). The elements of compensation are salary, bonuses, options and restricted stock grants. The authors proxy the design of CEO equity portfolios by the price performance sensitivity of the holdings and the portfolio deltas.

Design/methodology/approach

The authors use the components of executive compensation and portfolio risk as the dependent variables, regressing these against measures for the level of strategic investment. The authors test for non-linear relationships between the components of CEO compensation and strategic investments. The sample is a broad cross-section from 1992 to 2016.

Findings

The authors find strong support for non-linear relationships of capital expenditures and R&D with CEO bonuses, option grants and restricted stock grants. There are very complex relationships between the components of executive compensation and R&D expenditures, but little evidence of a relationship with advertising expenditures. The authors also find strong complex relationships in the design of CEO equity portfolios with advertising and R&D.

Originality/value

Little earlier research has considered advertising, capital expenditures and R&D in a unified framework. Also, testing for non-linear associations provides much greater insight into the relationship between the components of executive compensation and strategic investment. The findings represent a valuable incremental contribution to the executive compensation literature. The results also have normative policy implications for compensation committees’ design of optimal annual CEO compensation packages to incentivize or discourage particular strategic investment behavior.

Details

Journal of Financial Economic Policy, vol. 12 no. 1
Type: Research Article
ISSN: 1757-6385

Keywords

Book part
Publication date: 30 September 2020

Dmitry V. Didenko

This chapter sheds light on long-term trends in the level and structural dynamics of investments in Russian human capital formation from government, corporations, and households…

Abstract

This chapter sheds light on long-term trends in the level and structural dynamics of investments in Russian human capital formation from government, corporations, and households. It contributes to the literature discussing theoretical issues and empirical patterns of modernization, human development, as well as the transition from a centralized to a market economy. The empirical evidence is based on extensive utilization of the dataset introduced in Didenko, Földvári, and Van Leeuwen (2013). Our findings provide support for the view expressed in Gerschenkron (1962) that in late industrializers the government tended to substitute for the lack of capital and infrastructure by direct interventions. At least from the late nineteenth century the central government's and local authorities' budgets played the primary role. However, the role of nongovernment sources increased significantly since the mid-1950s, i.e., after the crucial breakthrough to an industrial society had been made. During the transition to a market economy in the 1990s and 2000s the level of government contributions decreased somewhat in education, and more significantly in research and development, but its share in overall financing expanded. In education corporate funds were largely replaced by those from households. In health care, Russia is characterized by an increasing share of out-of-pocket payments of households and slow development of organized forms of nonstate financing. These trends reinforce obstacles to Russia's future transition, as regards institutional change toward a more significant and sound role of the corporate sector in such branches as R&D, health care, and, to a lesser extent, education.

Details

Research in Economic History
Type: Book
ISBN: 978-1-83909-179-7

Keywords

Article
Publication date: 2 September 2019

Gurmeet S. Bhabra and Jacob Rooney

The purpose of this paper is to examine the relationship between the strength of corporate governance and the value of firm-level investment policies following the passage of the…

Abstract

Purpose

The purpose of this paper is to examine the relationship between the strength of corporate governance and the value of firm-level investment policies following the passage of the Sarbanes–Oxley (SOX) Act of 2002 and the associated changes to the listing requirements of major stock exchanges. In particular the authors seek to examine potential changes in the market’s assessed value of capital expenditures after the passage of the SOX Act relative to before.

Design/methodology/approach

The authors employ a difference-in-difference methodology, centred on the year of the passage of the SOX Act to test for the role of governance on the marginal value of capital expenditures. Excess stock returns are calculated by subtracting Fama and French (1993) size and book-to-market portfolio value-weighted returns from the firms’ annual stock returns. Each firm is grouped into one of 25 size and book-to-market portfolios for each year in the sample, with size and the book-to-market ratio proxying for sensitivity to common risk factors in stock returns (Fama and French, 1993).

Findings

The authors find that markets responded to the change in governance brought about by the new regulation by altering the value of firm-level capital expenditures in a way that is generally consistent with predictions of agency theory. While the overall findings imply a reduction in agency conflicts post-SOX, there is some evidence that certain firms may have suffered excessive costs of compliance, while still others saw managers become excessively risk averse.

Research limitations/implications

The study has implications related to the efficacy of legislation. Cross-sectional variation in the effect of SOX on the marginal value of capital expenditures suggests that one-size-fits-all legislative approach can have both expected as well as unintended consequences. The study limits its analysis to examining the impact of three significant provisions of the Act. While, the value implications of the Act are largely captured by the selected three, a more comprehensive study could expand on the set of provisions studies to obtain a more granular level impact.

Practical implications

This research should add to the growing body of the literature examining the effect of SOX on firms’ real activities and decisions, as well as contribute to the debate on whether the Act was beneficial or costly to firms. With particular reference to the impact of capital expenditure on firm value, the research contributes to the sparse literature examining the contribution of capital expenditures to firm value and the role that agency conflicts play in this relationship. Additionally, this research adds to the growing body of the literature that examines the costs and benefits of the sweeping new regulations brought on by the adoption of SOX.

Social implications

Given the importance of investment policy for economic productivity and growth, the insights provided by findings in this research should benefit lawmakers both within the USA as well as in countries where corporate misconduct and fraud is a concern.

Originality/value

This is the first study that examines the impact of the SOX Act on the way capital markets value firm-level investment in capital expenditures. Since use of corporate resources by managers is fraught with agency conflicts, the role of SOX in potentially alleviating this conflict as revealed by the tests in this study are very valuable.

Details

Managerial Finance, vol. 46 no. 2
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 March 2016

John Kovari

Although punctuated equilibrium theory (PET) is widely hailed as the dominant theory regarding public policy and budgets, little research has extended PET to the local government…

Abstract

Although punctuated equilibrium theory (PET) is widely hailed as the dominant theory regarding public policy and budgets, little research has extended PET to the local government arena or to capital expenditures. This article utilizes a panel dataset of public expenditures from Wisconsin counties, cities, villages, and towns from 1990-2009 to show that local operating and capital budgets fit the contemporary PET framework. However, the article also offers some discussion about methodological problems in assessing PET for local governments, and highlights the importance of differentiating between expenditure types (e.g. capital versus operating spending) as well as institutional differences between counties, cities, villages, and towns.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 28 no. 4
Type: Research Article
ISSN: 1096-3367

1 – 10 of over 30000