Do capital expenditures influence earnings performance: Evidence from loss-making firms

Sungsoo Kim, Amitav Saha, Sudipta Bose

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)2539-2575
Number of pages37
JournalAccounting and Finance
Volume61
Issue numberS1
DOIs
StatePublished - Apr 2021

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics, Econometrics and Finance (miscellaneous)

Keywords

  • Capital expenditures
  • Investment
  • Loss-making firms
  • Near-term earnings performance

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