Abstract
We study the determinants for the choice of capital budgeting methods and the
setting of hurdle rates (WACCs) in five Nordic countries. Combining survey data
with a rich set of determinants, including ownership data, CFO characteristics,
and financial data, we find that the use of the Net Present Value method and the
sophistication of the capital budgeting are related to firm characteristics, vari-
ables proxying for real option features in investments and CFO characteristics
(age and education). We also find support for significantly higher hurdle rates
than motivated by economic theory. The premium is weakly positively related to
managerial short-term pressure and strongly negatively related to the sophistica-
tion level of the firm’s capital budgeting.
setting of hurdle rates (WACCs) in five Nordic countries. Combining survey data
with a rich set of determinants, including ownership data, CFO characteristics,
and financial data, we find that the use of the Net Present Value method and the
sophistication of the capital budgeting are related to firm characteristics, vari-
ables proxying for real option features in investments and CFO characteristics
(age and education). We also find support for significantly higher hurdle rates
than motivated by economic theory. The premium is weakly positively related to
managerial short-term pressure and strongly negatively related to the sophistica-
tion level of the firm’s capital budgeting.
| Original language | English |
|---|---|
| Peer-reviewed scientific journal | Accounting & Finance |
| Volume | 53 |
| Pages (from-to) | 85-110 |
| Number of pages | 26 |
| DOIs | |
| Publication status | Published - 18.03.2013 |
| MoE publication type | A1 Journal article - refereed |
Keywords
- 512 Business and Management
- Capital budgeting methods; Hurdle rate; Weighted average cost of capital; Net Present Value; Internal Rate of Return; Nordic countries
- KOTA2013