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An empirical investigation of capital expenditure announcements

Shenoy, Catherine
; 
Vafeas, Nikos
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Abstract
In this paper we study the market reaction to capital expenditure announcements in the backdrop of Jensen's [1986] free cash flow hypothesis. Our initial results confirm McConnell and Muscarella’s [1985] original findings suggesting that announcement-period returns follow in sign announced changes in capital spending. Moreover, estimating regressions similar to Lang Stulz and Walkling [1991] we find evidence that is somewhat weak, supportive of the free cash flow hypothesis in explaining announcement-period returns. Finally, an alternative information-signalling explanation for the market reaction cannot be ruled out entirely.
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Date
2005
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Taylor and Francis
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Shenoy_2005.docx
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Shenoy, Catherine, and N. Vafeas, 2005. The free cash flow effects of capital expenditure announcements. Applied Economics Letters 12, Nos. 14-15, p. 907-911. http://dx.doi.org/10.1080/1350485052000345564
URI
https://hdl.handle.net/1808/16665
DOI
10.1080/1350485052000345564
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