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Investment Appraisal and Measures of Performance in Italian Divisionalised Companies

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  • Franco Cescon

Abstract

The aim of this study was to describe and analyse the current practice and trends in the development of management control practice as regards divisional investments in large Italian firms, using a survey questionnaire method. Some comparison with top North-American and German international manufacturing units were also made. The findings of the study supported two theoretical propositions. In the identification stage, firms tend to decentralise the process of capital budgeting and the control mechanism ensuring the link between corporate strategic objectives and capital expenditure projects at divisional level is based on guidelines produced by headquarters. In the selection stage firms which perceive a high interface level with the corporate strategic objectives in divisional capital expenditure tend to use discounted cash flow techniques when choosing one or more investment projects. When an economic approach is used to provide a comprehensive measure of performance, the theoretical framework fails to predict the relationship between corporate control and performance evaluation system in divisionalised companies. Essentially, financial control combines non-financial measures, used to understand manufacturing operations, with traditional accounting measures, used to understand the effects of manufacturing activities on the level of operating cash flow and operating income, as a comprehensive measures of performance in the medium-term of divisional investments. Copyright Kluwer Academic Publishers 1998

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  • Franco Cescon, 1998. "Investment Appraisal and Measures of Performance in Italian Divisionalised Companies," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 2(2), pages 191-212, June.
    • Handle: RePEc:kap:jmgtgv:v:2:y:1998:i:2:p:191-212
    DOI: 10.1023/A:1009946929486
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    1. Rosemary Stewart & Jean-Louis Barsoux & Alfred Kieser & Hans-Dieter Ganter & Peter Walgenbach, 1994. "Managing in Britain and Germany," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-23584-1, December.
    2. Cable, John R, 1985. "Capital Market Information and Industrial Performance: The Role of West German Banks," Economic Journal, Royal Economic Society, vol. 95(377), pages 118-132, March.
    3. Carr, Christopher & Tomkins, Cyril & Bayliss, Brian, 1994. "Financial or strategic controls? : An Anglo-German case study," European Management Journal, Elsevier, vol. 12(1), pages 102-113, March.
    4. Fama, Eugene F., 1977. "Risk-adjusted discount rates and capital budgeting under uncertainty," Journal of Financial Economics, Elsevier, vol. 5(1), pages 3-24, August.
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    1. Franco Cescon, 2002. "Short-term Perceptions, Corporate Governance and the Management of R & D in Italian Companies," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 6(3), pages 255-270, September.

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