The long-term effects of CAPEX, R&D and acquisition expenditure on stock returns

Abstract

We regress R&D expenditures, CAPEX and the cash-flow of acquisition on a quarterly basis on the stock market excess return of stocks included in the Russel 3000 index. Acquisitions are statistically significant in a model which includes the current and the lagged period as a part of a composite model with R&D and CAPEX. R&D expenditures are robust and statistically significant, both in the current period and in its first lag, though with different signs. The current period is a negative and the lag is a positive determinant of returns. The latter finding of a positive lagged effect is also found in previous studies. We provide fresh insights by combining the three variables as possible determinants of stock return.