Moderating Effect of Investment Opportunity in the Association of Market Response and Capital Expenditure

Abstract

This study aims to reveal empirical evidence related to the market response to investment spending associated with investment opportunities, considering that investment opportunities is a crucial factor in capital expenditure decisions. This study used data from the Indonesia Stock Exchange in 2016-2021. The sample is only devoted to large-cap companies because this kind of company concerns investors more. The sample does not exclude the business sector, as in previous studies. Following previous research, investment opportunities are measured by Tobin's Q (TQ); a TQ of more than 1 indicates a higher investment opportunity and vice versa. The results show that the market responds negatively to investment spending, and investment opportunities moderate the market's response to investment spending. In addition, it was revealed that the industrial sector strengthened the influence of investment spending on market response. Therefore, management needs to consider investment opportunities before making investment expenditures to avoid getting caught up in overinvesting or under-investing, both of which are detrimental to the company. This study also adds empirical evidence in developing countries where the information gap between management and external parties (markets) is still vast.