“Voluntary Capex Guidance and Capital Investment Efficiency” by Professor Chul W. PARK
Professor Chul W. PARK
Professor of Accounting
School of Business
The University of Hong Kong
Evidence that managers voluntarily provide capital expenditure guidance as frequently as they do earnings guidance and over extended periods is posited to reflect disclosure pre-commitments to enhanced capital investment efficiency incentivized by transparency, monitoring and feedback effects consistent with the reasoning of Langberg and Sivaramakrishnan (2010). Our findings lend support by documenting capex guidance to be positively associated with capital investment efficiency and the mitigation of both capital over- and under-investment. Corroborative hypothesis tests confirm that capex guidance is positively associated with abnormal stock returns and dedicated institutional investor ownership, and that absolute capex forecast errors are negatively associated with dedicated institutional investor ownership and the number of analysts following the firm. Overall, our findings support a positive association between capex guidance and capital investment efficiency.