Capital expenditure and firm performance : do CEO reputation and political connection matter?

Abstract

This paper examines how CEO reputation and political connection will affect the firm’s performance immediately upon and after a capital expenditure (Capex) announcement. Our sample consists of 1,803 capital expenditure announcements made by 732 Asian-pacific listed companies from different industries from 1992 to 2007. 662 CEOs of these companies are identified with 530 media exposure. Our results suggest that investors generally react positively to Capex announcement in the short run. CEO reputation is not significantly associated with the short-term market reaction upon Capex announcement, but it improves the accounting performance of the firm in the long run. On the other hand, market participants seem to respond less positively to Capex announcement made by politically-connected firms, but there is no evidence that politically-connected firms are associated with poorer future accounting performance.