Abstract

In this study, I empirically investigated the relationship between the level of capital expendituresand future firm performance measured as the accounting figures, unlike the prior studies. Inaddition, I examined the effect of investment efficiency of capital expenditures on the future firmperformance. Research has been conducted after the sample firms are classified into the threegroups based upon the direction of investment efficiency：the total, over－investment, and underinvestmentfirms, respectively. The results of this study report the following evidence. First, the level of capital expenditures isnot positively related with the future ROA for the whole sample firms. However, the investmentefficiency is statistically positively related with future ROA for the same sample firms. Thisevidence indicates that the efficiency rather than level of capital expenditures contributes to theimprovement of future ROA. Second, the analyses for the over－investment sample firms report the results that the level ofcapital expenditures is not related with the future ROA, while the investment efficiency improvesthe future firm performance measured as ROA. This evidence is the same with the results of theanalyses for the whole sample firms. Finally, for the case of under－investment sample firms, the level of capital expenditures ispositively related with future ROA. However, the investment efficiency has no effect on theimprovement of future accounting performance. This results are different from those of theexamination for the over－investment sample firms. Overall, this evidence implies that theefficiency of capital expenditures promotes the future accounting performance of only overinvestmentsample firms, while the level of capital expenditures increases the future accountingperformance of only under－investment sample firms, which has the theoretical validity.

Keywords

• capital expenditures
• investment efficiency
• over－investment
• under－investment
• firm performance

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