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Intertemporal capital budgeting

Author

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  • Roper, Andrew H.
  • Ruckes, Martin E.

Abstract

This paper analyzes the optimal capital budgeting mechanism when divisional managers are privately informed about the arrival of future investment projects. Consistent with field study evidence, an optimal allocation mechanism can include a stipulation that a capital request for discretionary investment will be declined with positive probability in the period after a significant investment was made even though this is ex post suboptimal. The model derives a number of empirical predictions regarding capital budgeting and the investment of financially constrained firms.

Suggested Citation

  • Roper, Andrew H. & Ruckes, Martin E., 2012. "Intertemporal capital budgeting," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2543-2551.
    • Handle: RePEc:eee:jbfina:v:36:y:2012:i:9:p:2543-2551
    DOI: 10.1016/j.jbankfin.2012.05.012
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    References listed on IDEAS

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    Cited by:

    1. Hornstein, Abigail S., 2013. "Corporate capital budgeting and CEO turnover," Journal of Corporate Finance, Elsevier, vol. 20(C), pages 41-58.
    2. Christoph Siemroth, 2024. "Ending Wasteful Year‐End Spending: On Optimal Budget Rules In Organizations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(3), pages 1163-1188, August.
    3. Najah Attig, 2024. "Relaxed Financial Constraints and Corporate Social Responsibility," Journal of Business Ethics, Springer, vol. 189(1), pages 111-131, January.

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    More about this item

    Keywords

    Capital budgeting; Investment policy; Incentives;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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