The paper is based upon research done by Carolyn Wirth for her PhD dissertation at Massey University, supervised by Professor Martin Young and Dr Jing Chi. The authors gratefully acknowledge the valuable comments of Andrew Stark (editor), an anonymous referee, Dennis Olson, Jenni Bettman, and participants at the following meetings: Massey University School of Economics & Finance Seminar 2010, the 15th New Zealand Finance Colloquium 2011, the 2011 FMA Asian Conference and the 2nd Finance and Corporate Governance Conference 2011. All mistakes remain our own.
The Economic Impact of Capital Expenditures: Environmental Regulatory Delay as a Source of Competitive Advantage?
Article first published online: 16 JAN 2013
© 2013 Blackwell Publishing Ltd
Journal of Business Finance & Accounting
Volume 40, Issue 1-2, pages 115–141, January/February 2013
How to Cite
Wirth, C., Chi, J. and Young, M. (2013), The Economic Impact of Capital Expenditures: Environmental Regulatory Delay as a Source of Competitive Advantage?. Journal of Business Finance & Accounting, 40: 115–141. doi: 10.1111/jbfa.12009
- Issue published online: 25 FEB 2013
- Article first published online: 16 JAN 2013
- Manuscript Accepted: NOV 2012
- Manuscript Received: MAY 2011
- regulatory delay;
- capital investments;
- competitive advantage;
- shareholder wealth creation;
- market valuation;
- environmental regulation;
- compliance costs;
- non-financial information;
- New Zealand
This study tests the proposal that by undertaking voluntary capital expenditures that are subject to lengthy environmental regulatory delays, listed companies can gain a competitive advantage. The stock market is found to react positively to new capital expenditure announcements when projects are expected to experience long delays in obtaining environmental regulatory approval. Two sources of potential competitive advantage are firm learning and first mover advantages. Lengthy delays in regulatory processes and high compliance costs incurred for environmentally-sensitive projects may allow firms opportunities to develop specialised capabilities and/or to deter industry competitors and new entrants, resulting in greater expected project NPVs. The findings also underscore the importance of non-financial environmental information to investors in their assessment of firm value.