Determinants of Net Capital Expenditure Cash Outflows: Evidence from the Pharmaceutical Sector of Bangladesh
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Published:
Dec 1, 2017
Keywords:
Pharmaceutical Sector, Net Capital Expenditure Outflows, Business Risk
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Abstract
This study attempts to identify the key determinants of net capital expenditure outflows for a panel of 14 listed pharmaceutical companies. The study has used data from 2003-2015 for each company. The study finds that previous year net capital expenditure outflows, the age of the company, size of the company, leverage of the company, business risk of the company, and independent directors on the board of directors’ panel are the key determinants of net capital expenditure outflows. The study uses Panel GMM approach along with Fixed Effect OLS and PCSE OLS. Age of the company, size of the company, and percentage of independent directors have a significant positive impact on net capital expenditure outflows unlike business risk and leverage of the company.
Keywords: Pharmaceutical Sector, Net Capital Expenditure Outflows, Business Risk
JEL Classification: C33, E22, L65
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Bhojraj, S., Hribar, P., & Picconi, M. (2009). Making Sense of Cents: An Examination of Companies That Marginally Miss or Beat Analyst Forecasts. The Journal of Finance, 64, 1-38.
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Cantor, R. (1990). Effects of leverage on corporate investment and hiring decisions. Federal Reserve Bank of New York Quarterly Review.
Chan, S. H., Martin, J. D., & Kensinger, J. W. (1990). Corporate Research and Development Expenditure and Share Value. Journal of Financial Economics, 26(2), 255-276.
Cheng, M., Subramanyam, K.R., & Zhang, Y. (2007). Earnings Guidance and Managerial Myopia. Retrieved from https://www.kellogg.northwestrn.edu/
Claessens, S., Djankov, S., Fan J., & Lang, L. H. P. (2002). Disentangling the incentive and entrenchment effects of large shareholdings. Journal of Finance, 57, 2741-2772.
Coad, A., Segarra, A., & Teruel, M. (2016). Innovation and company growth: Does company age play a role? Research Policy, 45, 387-400.
CPD (2016). State of the Bangladesh Economy in FY 2015-16 (Third Reading). Dhaka: Centre of Policy Dialogue (CPD).
Dalbor, M. & Jiang, L. (2013). Determinants of Capital Expenditures in the U.S. Restaurant Industry. The Journal of Hospitality Financial Management, 21(2), 77-86.
Davidson, R., Goodwin-Stewart, J., and Kent, P. (2005). Internal governance structures and earnings management. Accounting and Finance, 45(2), 241-267.
DeMarzo, P. & Fishman, M.J. (2007). Agency and Optimal Investment Dynamics. Review of Financial Studies, 20(1), 151-188.
Doshi, H., Kumar, P. & Yerramilli, V. (2016). Uncertainty, Capital Investment, and Risk Management. Retrieved from http://www.bauer.uh.edu/
Dube, I. & Pakhia, A. (2013). Role of Independent Director in Corporate Governance –Reference to India. Corporate Board: Role, Duties, and Composition, 9(1), 50-83.
Dunne, T., Roberts, M. J., & Samuelson, L. (1989). The growth and failure of U.S. manufacturing plants. Quarterly Journal of Economics, 104, 671–698.
Eisner, R. (1956). Determinants of Capital Expenditures. The Engineering Economist, 1(4), 24. (Published in online, 13 Sep 2010).
Export.gov. (2016). Bangladesh Pharmaceutical. Bangladesh Country Commercial Guide. Retrieved from https://www.export.gov/
Fama, E.F. & Jensen, M.C. (1983). Separation of Ownership and Control, Chicago Journals, 26(2), 301-325.
Fama, E. & Miller, M. (1972). Theory of Finance. New York: Holt, Rinehart, and Winston.
Fan, J. & Wong, T. J. (2002). Corporate ownership structure and the informativeness of accounting earnings in East Asia. Journal of Accounting and Economics, 33, 401-425.
Griner, E. H. & Gordon, L. A. (1995). Internal cash flow, insider ownership, and capital expenditure. Journal of Business Finance and Accounting, 22, 179-199.
Gritta, R.D., Adams, B., & Adrangi, B. (2006). An Analysis of the Effects of Operating and Financial Leverage on the Major U.S. Air Carriers’ Rates of Return: 1990-2003. 47th Annual Transportation Research Forum, New York.
Haller, S. & Murphy, L. (2012). Corporate Expenditure on Environmental protection. Environmental and Resource Economics, 51(2), 277-296.
Haltiwanger, J.C., Jarmin, R.S. & Miranda, J. (2013). Who creates jobs? Small vs. large vs. young. Review of Economics and Statistics, 95, 347-361.
Hamidi, M. (2015). Determinants of Capital Expenditures Decision in Malaysian Companies. The Australian Conference on Business and Social Science.
Hashemijoo, M., Ardekani, A. M., & Younesi, N. (2012). The Impact of Dividend Policy on Share Price Volatility in the Malaysian Stock Market. Journal of Business Studies Quarterly, 4(1), 111-129.
Hausman, J. (1978). Specification tests in econometrics. Econometrica, 46, 1251-1271.
Haw, I., Hu B., Hwang, L., & Wu, W. (2004). Ultimate ownership, income management, and legal and extra-legal institutions. Journal of Accounting Research, 42, 423-462.
Hayakawa, K. (2009). First Difference or Forward Orthogonal Deviation- Which Transformation Should be Used in Dynamic Panel Data Models?: A Simulation Study. Economics Bulletin, 29(3), 1-10.
Hayashi, F. (1982). Tobin’s marginal q and average q: A neoclassical interpretation. Econometrica, 50 (1) 213-224.
Hsiao, P. & Li, D. (2012). What is a good investment measure? Investment Management and Financial Innovations, 9(1), 8-19.
IMS Health Data. Retrieved from http://www.imshealth.com/
Jacobs, D. (2009). Capital Expenditures and the Budget’ in IMF’s Public Financial Management Technical Guidance Note. Retrieved from http://blog-pfm.imf.org
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 76(2), 323-329.
Jensen, M. C. and Meckling, W. H. (1976). Theory of the company: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
Jensen, M. C. (1989). Eclipse of public corporation. Harvard Business Review, 67(5), 61-74.
Johnson, S., Porta R. L., LopezdeSilanes, F. & Shleifer A. (2000). Tunneling. American Economic Review, 90, 22-27.
Kalyebara, B. & Islam, S. M. N. (2014). Corporate Governance, Capital Markets, and Capital Budgeting. Contributions to Management Science, 20, 244.
Lang, L. E., Ofek, E., & Stulz, R. (1996). Leverage, investment and company growth. Journal of Financial Economics, 40, 3-29.
Laverty, K. J. (1996). Economic “Short-Termism”: The Debate Unresolved Issues, and the Implicarions for Management Practice and Research. Academy of Management Review, 21(3), 825-860.
Lawrence, J. & Stapledon, G. (1999). Do Independent Directors Add Value? Published in Melbourne by Centre for Corporate Law and Securities Regulation.
Lemmon, M. L. & Lins, K. V. (2003). Ownership structure, corporate governance, and company value: evidence from the East Asian financial crisis. Journal of Finance, 58, 1445-1468.
Lang, L. H. P., Stulz, R., & Walking, R. A. (1991). A test of the free cash flow hypothesis: The case of bidder returns. Journal of Financial Economics, 29, 315-335.
Lehn, K & Poulsen, A. (1989). Free cash flow and stockholder gains in going private transactions. The Journal of Finance, 44(3), 771-787.
Lev, B. (1974). On the Association between Operating Leverage and risk. Journal of Financial and Quantitative Analysis, 9, 627-642.
Lloyd, W., Jahera, J. & Page, D. (1985). Agency Costs and Dividend Payout Rations. Quarterly Journal of Business and Economics, 24, 19-29.
Markarian, G., Pozza, L. & Prencipe, A. (2008). Capitalization of R&D costs and earnings management: Evidence from Italian listed companies. The International Journal of Accounting, 43, 246-267.
Matchett, G. J. (1965). Determinants of Capital Expenditures. The Engineering Economist, 2(2), 28-31. Published online in (13 September 2010).
Masulis, R., Cong Wang & Fei Xie, (2008). Agency problems at dual-class companies. Journal of Finance, 64 (4), 1697-1727.
McConnell, J. J. & Muscarella, C. J. (1985). Corporate Capital Expenditure Decisions and the Market Value of the Company. Journal of Financial Economics, 14(3), 399-422.
McConnell, J.J., & Servaes, H. (1995). Equity ownership and the two faces of debt. Journal of Financial Economics, 39, 131-157.
Miller, M. H. (1991). Leverage. The Journal of Finance, 46(2), 479-488.
Myers, S.C. & Majluf, N. (1984). Corporate financing and investment decisions when companies have information that investors do not have. Journal of Financial Economics, 13, 187-224.
Myers, S. C. (1977). Determinants of corporate borrowing. Journal of Financial Economics, 5, 147-175.
Myers, S.C. (1984). The capital structure puzzle. The Journal of Finance, 39(3), 574-592.
Nini, G., Smith, D.C., & Sufi, A. (2012). Creditor Control Rights, Corporate Governance, and Company Value. Review of Financial Studies, 25, 1713-1761.
Notification of Independent Directors by BSEC. Retrieved from http://www.secbd.org/Notificationper cent20onper cent20CG-07.8.12-Amended.pdf
Notification of Independent Directors by SEBI. Retrieved from http://www.sebi.gov.in/
Olowe, A. (2009). Financial Management: Concepts, Financial System and Business Finance. Lagos: Brierly Jones Nig. Ltd.
Osma, G.B. (2008). Board Independence and Real Earnings Management: The Case of R&D Expenditure. Corporate Governance, 16(2), 116-131.
Patton, A. & Baker, J. C. (1987). Why don’t directors rock the boat? Harvard Business Review, 65(6), 10-18.
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