Corporate Performance after Substantial Capital Expenditure: The Role of Growth Opportunity and Corporate Governance

This paper seeks to answer the following questions. Does corporate performance outperform the market after substantial capital expenditure? Which firms perform better after substantial capital expenditure? Our sample includes 267 companies listed on the Taiwan Stock Exchange whose net fixed assets have increased by more than 20% during 1999-2003. Our evidence shows that companies do not consistently outperform the market after substantial capital expenditure. Furthermore, we find that companies with higher growth opportunities, higher insider shareholdings, independent directors, a smaller board of directors, a more incentive-based compensation structure or that are family-controlled perform better after incurring capital expenditure. We also find that the performance of firms with independent directors, higher managerial shareholdings or that are family-controlled is enhanced more significantly in the case of low-growth companies.