A Summary of Multinational Capital Budgeting Studies

Kim, Suk H.; Ulferts, Gregory W.

doi:10.1108/eb018544

Cited by 9 publications

(3 citation statements)

References 2 publications

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“…Later in this study, we will evaluate the use of DCF techniques by smaller firms. Gilbert (2003) & Shao (1996), Kim & Ulferts (1996), and Ryan and Ryan (2002).) Pike (1996) undertook a longitudinal survey on capital budgeting practices in the United Kingdom for different years consisting of surveys of the same firms in 1975, 1982, 1986 and 1992. In order to bring Pike's research up to date for the UK, this paper has included the results of a survey undertaken in 1997 by Arnold and Hatzopoulos (2000) and a survey undertaken in 2003 by Alkaraan and Northcott (2006).…”

Section: Techniques In South Africamentioning

confidence: 98%

Capital budgeting practices in South Africa: A review

Correia

2012

SAJBM

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This paper reviews the capital budgeting survey literature in South Africa over the period 1972 to 2008. The survey evidence indicates a significant growth in Discounted Cash Flow (DCF) methods and a fall in the use of other methods. In particular, there has been growth in the use of Net Present Value (NPV). Yet, the Internal Rate of Return (IRR) technique remains the primary method used in practice despite some serious drawbacks. Larger companies are more likely to use DCF methods. There has been a significant growth in the use of sensitivity analysis and scenario analysis. However, there is little use of sophisticated risk analysis tools such as Monte Carlo simulation, and decision trees. Although financial theory predicates the use of risk adjusted discount rates, surveys indicate that the majority of companies use a single firm discount rate. Companies have increasingly used inflation-adjusted cash flows but the process of ranking mutually exclusive projects is not aligned with finance theory. There is limited use of the Modified Internal Rate of Return (MIRR) method and DCF dominant companies do not outperform non-DCF dominant companies. The most important phase of project evaluation is the project definition and cash flow estimation phase and yet research studies have focused mainly on the financial analysis and project selection phase.

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Section: Techniques In South Africamentioning

confidence: 98%

Capital budgeting practices in South Africa: A review

Correia

2012

SAJBM

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“…Jog and Srivastava (1995) however find that Canadian managers use IRR more than they use NPV. Kim and Ulferts (1996) summarize five surveys on capital budgeting practices of multinational companies. Each survey found that IRR is used more as a primary project evaluation technique than NPV.…”

Section: IImentioning

confidence: 99%

Why Do Managers Use IRR in Investment Analysis?

Bhattacharyya

2012

JFI

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Finance textbooks recommend the use of Net Present Value (NPV) as the evaluation tool for Capital Budgeting. Yet surveys of managers have consistently shown that managers prefer Internal rate of Return (IRR) to NPV. This article rigorously establishes the interpretation of IRR as the return earned on funds that remains internally invested in the project. Using this interpretation IRR can be viewed as a tool to evaluate the riskiness of the capital budgeting proposal.

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“…El interés por conocer el tipo de técnicas empleadas por los directivos en la selección de sus inversiones se remonta a principios de los años 60, con los trabajos de Miller (1960) e Istvan (1961). Según Kim y Ulferts (1996), la secuencia de los sucesivos estudios publicados en la década de los 60 y 70 evidencia la progresiva adopción de modelos teóricamente superiores, basados en el descuento de flujos. A pesar de esta tendencia, la denuncia del distanciamiento entre la teoría y la práctica de selección de inversiones es una constante en la literatura financiera.…”

Section: La Práctica De La Selección De Inversionesunclassified

La selección de inversiones y fuentes de financiación en la práctica: El caso de la empresa española

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A Summary of Multinational Capital Budgeting Studies

Cited by 9 publications

References 2 publications

Capital budgeting practices in South Africa: A review

Capital budgeting practices in South Africa: A review

Why Do Managers Use IRR in Investment Analysis?

La selección de inversiones y fuentes de financiación en la práctica: El caso de la empresa española

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