Capital Budgeting Practices in Large American Firms: A Retrospective Analysis and Synthesis

Scott, David F.; Petty, J. William

doi:10.1111/j.1540-6288.1984.tb01089.x

Cited by 74 publications

(27 citation statements)

References 11 publications

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“…Yates and Stone (1992a, p. 8) describe a target reference outcome as ''an outcome a person actively works to obtain'' and acknowledge that target reference levels may be set by ''individuals for themselves'' or by ''other people''. Results from previous empirical studies of managerial behavior indicate that managers perceive risk relative to target reference outcomes set by an organization (Scott and Petty, 1984). For example, Mao (1970, p. 353) found that executives defined risk as ''the prospect of not meeting the target rate of return.''…”

Section: Literature Reviewmentioning

confidence: 99%

Buyer perceptions of supply disruption risk: A behavioral view and empirical assessment

Ellis

Henry

Shockley

2009

J of Ops Management

306

283

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As supply chains become more complex, firms face increasing risks of supply disruptions. The process through which buyers make decisions in the face of these risks, however, has not been explored. Despite research highlighting the importance of behavioral approaches to risk, there is limited research that applies these views of risk in the supply chain literature. This paper addresses this gap by drawing on behavioral risk theory to investigate the causal relationships amongst situation, representations of risk, and decision‐making within the purchasing domain. We operationalize and explore the relationship between three representations of supply disruption risk: magnitude of supply disruption, probability of supply disruption, and overall supply disruption risk. Additionally, we draw on exchange theories to identify product and market factors that impact buyers’ perceptions of the probability and magnitude of supply disruption. Finally, we look at how representations of risk affect the decision to seek alternative sources of supply. We test our model using data collected from 223 purchasing managers and buyers of direct materials. Our results show that both the probability and the magnitude of supply disruption are important to buyers’ overall perceptions of supply disruption risk. We also find that product and market situational factors impact perceptions of risk, but they are best understood through their impact on perceptions of probability and magnitude. Finally, we find that decisions are based on assessments of overall risk. These findings provide insight into the decision‐making process and show that all three representations of risk are necessary for fully understanding risky decision‐making with respect to supply disruptions.

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Section: Literature Reviewmentioning

confidence: 99%

Buyer perceptions of supply disruption risk: A behavioral view and empirical assessment

Ellis

Henry

Shockley

2009

J of Ops Management

306

283

View full text Add to dashboard Cite

show abstract

“…Practitioner's preference for the IRR is explained by the fact that IRR is treated as a display method and is more cognitively efficient. Since the IRR is expressed as an interest rate, it more closely resembles an analog display, in which the IRR is simply compared to the required rate of return, whereas the NPV is expressed in dollars, resembling a precise digital display [8,9].…”

Section: Literature Reviewmentioning

confidence: 99%

Capital Budgeting Techniques Used by Small Manufacturing Companies

Hasan¹

2013

JSSM

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Small companies account for 40% of Australian jobs and yet most of the studies on capital budgeting techniques have been focused on large firms. A mistake in their capital budgeting process could lead to disastrous consequences as they do not have the financial clout to recover from them. The purpose of the paper is to investigate where small manufacturing companies in Australia stand in regard to the use of capital budgeting techniques and risk analysis. The research concludes that while there is an indication of usage of the Payback Period with Discounted Cash Flow (DCF) techniques, there is a need for more frequent usage of risk analysis as well as management sciences which is found lacking in the capital budgeting process of small companies.

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“…However, if a firm faces capital constraints that will extend to future years, the firm must consider duration, IRR, and the potential IRR on future projects-in addition to NPV-when making investment decisions. Suggesting that capital markets might be less than perfect, numerous surveys [13,14,20] have shown that managers do in fact consider alternative measures-such as IRR, duration, and payback period-along with NPV when making capital budgeting decisions. By describing when and how duration is relevant to the capital budgeting decision, this paper helps reconcile capital budgeting theory to capital budgeting practice.…”

Section: Discussionmentioning

confidence: 99%