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Capital Investment Expenditure

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1.1 Background of the study
The capital investment expenditures is one the most significant aspects of managerial decisions and the most important one of business investment decisions. Since it is more complex and usually involve a huge cost, any decision in this regard will have a long-term impact on the economic value of the enterprise. It is, therefore, important to make a careful study by the top level management before making any capital investment expenditures decision (LAL 2000).
Due to these important, there is an extensive empirical literature testing the capital investment expenditures as the important one of business investment decisions and its constraints.
Although an extensively large body of accounting, economics, and finance …show more content…

Considering future investment opportunities and the internal cash generation potential of the firm, both capital structure and dividend policy are chosen to secure that sufficient funds are available to undertake all profitable investments without handle new equity (Black, 1976).
So, one of the most important constraints of investment decision in general and capital investment expenditures in particular is dividend policy. Dividend payout policy is an important corporate issue and may be closely related to, and interacts with most of the firm's financial decisions especially capital investment decisions.
Dividend payout is a matter of interest to investors because it provides a source of income and further importantly they give the investors an insight about the company’s performance. Allen and Michaely (1994) reached that setting a proper dividend policy is a critical responsibility for the managers since it has a larger impact on the company’s share price and it also can affect the capital investment expenditures, asset pricing, capital structure, mergers and acquisitions, and capital budgeting (Ardestani et. al. …show more content…

Thus, managers worth capital investment because their perquisites increase with capital investment even when the firm invests in negative net present value (NPV) investments (René M. Stulz 1990).
Jensen (1986), among others, has debated that managers often have the incentives or desire to grow the firm exceeding its optimal size by new investments and acquisitions that do not add value to the firm. This non-value maximizing action is sometimes called empire building. Firm Shareholders are concerned about this, and can take several actions to halt and control these actions.
In the point-view of "A residual distribution policy" which means that the firms make their investment decisions based on investment opportunities and available funds, If they do not have sufficient funds available to make investments, they consider accessing capital markets. If they have excess funds (and they do not believe they will need the funds in the near future), they return the remainder to

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