Disaggregated capital expenditure disclosures: Determinants and value relevance

Capital expenditures (CAPX) can be disaggregated between maintenance (MCAPX) and growth (GCAPX) capital expenditures and voluntarily disclosed by firms. Maintenance and growth CAPX could provide distinctly different information that is helpful to investors. MCAPX is the portion of investment used to prevent deterioration in performance by ensuring the longevity of plant and equipment, while, GCAPX is the portion of capital investment spent on new projects. Prior literature has not investigated the value relevance of these disclosures. Accordingly, the objectives of this study are (1) to determine firm characteristics associated with voluntary disclosure of disaggregated CAPX information, (2) to determine whether disclosures of MCAPX and GCAPX provide different repercussions for future performance and (3) to assess whether this information is associated with firm value. Using a hand-collected sample of firms that disclose MCAPX and GCAPX, findings support the relevance of all five determinants (i.e., firm characteristics) in explaining the voluntary disclosure of disaggregated CAPX information: proprietary cost, agency cost, information asymmetry, firms that just meet or beat analyst forecasts, and financially constrained firms. Most importantly, the findings support that the disclosures of MCAPX and GCAPX have different consequences for future firm performance. Specifically, MCAPX has a positive association with next year's earnings per share (EPS), but a negative association for the following years. However, GCAPX has no association in the first year but a positive association with sales and operating cash flow after the first year. The different associations of MCAPX and GCAPX with future firm performance suggest the disaggregation of CAPX provides important information about future earnings. The findings also support the value relevance of the disclosures. However, the association with future firm performance differs from that of firm value. GCAPX has a negative association with current returns which is different from the positive association between GCAPX and future firm performance. Furthermore, disaggregated CAPX disclosures do not result in more of future earnings being incorporated in current returns.