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The Economic Impact of Capital Expenditures: Environmental Regulatory Delay as a Source of Competitive Advantage?
Authors:Carolyn Wirth  Jing Chi  Martin Young
Institution:Massey University, , Palmerston North, New Zealand
Abstract:This study tests the proposal that by undertaking voluntary capital expenditures that are subject to lengthy environmental regulatory delays, listed companies can gain a competitive advantage. The stock market is found to react positively to new capital expenditure announcements when projects are expected to experience long delays in obtaining environmental regulatory approval. Two sources of potential competitive advantage are firm learning and first mover advantages. Lengthy delays in regulatory processes and high compliance costs incurred for environmentally‐sensitive projects may allow firms opportunities to develop specialised capabilities and/or to deter industry competitors and new entrants, resulting in greater expected project NPVs. The findings also underscore the importance of non‐financial environmental information to investors in their assessment of firm value.
Keywords:regulatory delay  capital investments  competitive advantage  shareholder wealth creation  market valuation  environmental regulation  compliance costs  non‐financial information  strategy  New Zealand
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