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The Capital Budgeting Process: Incentives and Information

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  • Harris, Milton
  • Raviv, Artur

Abstract

The authors study the capital allocation process within firms. Observed budgeting processes are explained as a response to decentralized information and incentive problems. It is shown that these imperfections can result in underinvestment when capital productivity is high and overinvestment when it is low. The authors also investigate how the budgeting process may be expected to vary with firm or division characteristics, such as investment opportunities and the technology for information transfer. Copyright 1996 by American Finance Association.

Suggested Citation

  • Harris, Milton & Raviv, Artur, 1996. "The Capital Budgeting Process: Incentives and Information," Journal of Finance, American Finance Association, vol. 51(4), pages 1139-1174, September.
    • Handle: RePEc:bla:jfinan:v:51:y:1996:i:4:p:1139-74
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