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Process industries operate in commodity markets with low product variety, little product differentiation, and highly capital-intensive manufacturing. Because prices are volatile and demand is uncertain, manufacturing capabilities become the main strategic competitive lever. The purpose of this paper is to evaluate the interplay between market conditions, capital expenditure, manufacturing flexibility, and production capacity to effectively analyze the consequences of manufacturing investments in both the short and the long terms. In order to achieve this, we developed an econometric model linking market conditions and operational decisions. We tested the model on a sample of 480 firms from the mining sector and 1053 firms from the oil and gas sector. The results show that firms in process industries follow the market with their investments, which impacts their operations in the short term as well as their capacity growth in the long term. Additionally, from our findings, we propose a firm value driver model that managers could consider when deciding on capital expenditures. Finally, our results indicate that the managers of financially healthy companies should resist the stock market's short-term pressure to reduce fixed costs and instead play the long game.
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