IDEAS home Printed from https://ideas.repec.org/a/pep/journl/v2y1993i3p233-249.html
   My bibliography  Save this article

Why Small Manufacturing Firms Shun DCF

Author

Listed:
  • Joe Walker

    (University of Alabama, Birmingham)

  • Richard Burns

    (University of Alabama, Birmingham)

  • Chad Denson

    (North Georgia College)

Abstract

Although there is ample literature on the use of capital budgeting techniques by small firms, there is practically no research available on why small firms don’t use discounted cash flow methods. This paper looks at this rationale issue in die light of Brigham's 10 hypodieses (in Fundamentals of Financial Management, sixth edition). Support is found primarily for Brigham’s ignorance hypothesis, but also for his other hypotheses concerning small firms’ short-run cash flow orientation, the comparatively small size of their projects, the managers’ overall knowledge of their firms, and the irrelevance of value analysis when the value of the firm itself is unknown. Furthermore, small firms seem quite satisfied with their present techniques. Since the chief difficulty of small firms is forecasting future cash flows, changing to more sophisticated techniques offers no obvious and effective remedy for that problem.

Suggested Citation

  • Joe Walker & Richard Burns & Chad Denson, 1993. "Why Small Manufacturing Firms Shun DCF," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 2(3), pages 233-249, Summer.
    • Handle: RePEc:pep:journl:v:2:y:1993:i:3:p:233-249
    as

    Download full text from publisher

    File URL: http://jefsite.org/RePEc/pep/journl/jef-1993-02-3-d-walker.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Richard Burns & Joe Walker, 1991. "A Survey of Working Capital Policy among Small Manufacturing Firms," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 1(1), pages 61-74, Spring.
    2. Runyon, L. R., 1983. "Capital expenditure decision making in small firms," Journal of Business Research, Elsevier, vol. 11(3), pages 389-397, September.
    3. Scott, David F, Jr & Petty, J William, II, 1984. "Capital Budgeting Practices in Large American Firms: A Retrospective Analysis and Synthesis," The Financial Review, Eastern Finance Association, vol. 19(1), pages 111-123, March.
    4. James S. Ang, 1991. "Small Business Uniqueness and the Theory of Financial Management," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 1(1), pages 1-13, Spring.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mohammad Saleh JAHUR & S. M. Nasrul QUADIR, 2012. "Financial Distress in Small and Medium Enterprises (SMES) of Bangladesh: Determinants and Remedial Measures," Economia. Seria Management, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 15(1), pages 46-61, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lefley, Frank, 1996. "The payback method of investment appraisal: A review and synthesis," International Journal of Production Economics, Elsevier, vol. 44(3), pages 207-224, July.
    2. Ayouz, Mourad K. & Remaud, Herve, 2003. "The Internationalization Determinants Of The Small Agro-Food Firms: Hypotheses And Statistical Tests," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 5(2), pages 1-27.
    3. Song Zhang & Liang Han & Konstantinos Kallias & Antonios Kallias, 2021. "The value of in-person banking: evidence from U.S. small businesses," Review of Quantitative Finance and Accounting, Springer, vol. 57(4), pages 1393-1435, November.
    4. Diana Hechavarría & Charles Matthews & Paul Reynolds, 2016. "Does start-up financing influence start-up speed? Evidence from the panel study of entrepreneurial dynamics," Small Business Economics, Springer, vol. 46(1), pages 137-167, January.
    5. Julien, Pierre-Andre, 1995. "New technologies and technological information in small businesses," Journal of Business Venturing, Elsevier, vol. 10(6), pages 459-475, November.
    6. Fabio Bertoni & María Ferrer & José Martí, 2013. "The different roles played by venture capital and private equity investors on the investment activity of their portfolio firms," Small Business Economics, Springer, vol. 40(3), pages 607-633, April.
    7. Edith Navarrete Marneou & Edgar Sansores Guerrero, 2011. "Quintano Roo Mexico Micro, Small And Medium Sized Business Failure: An Multi Variable Analysis, El Fracaso De Las Micro, Pequenas Y Medianas Empresas En Quintana Roo, Mexico: Un Analisis Multivariante," Revista Internacional Administracion & Finanzas, The Institute for Business and Finance Research, vol. 4(3), pages 21-33.
    8. Roopali Batra & Satish Verma, 2014. "An Empirical Insight into Different Stages of Capital Budgeting," Global Business Review, International Management Institute, vol. 15(2), pages 339-362, June.
    9. James C. Brau & Stanley E. Fawcett & Ladd Morgan, 2007. "An Empirical Analysis of the Financial Impact of Supply Chain Management on Small Firms," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 12(1), pages 55-82, Spring.
    10. John Watson & Jim Everett, 1996. "Small Business Failure Rates: Choice of Definition and the Size Effect," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 5(3), pages 271-285, Fall.
    11. Cuneyt Orman & Bulent Koksal, 2015. "Structure of Debt Maturity across Firm Types," Working Papers 1521, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    12. Filipe Sardo & Elisabete S. Vieira & Zélia Serrasqueiro, 2022. "The role of gender and succession on the debt adjustments of family firm capital structure," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 12(2), pages 349-372, June.
    13. Nikolaos Daskalakis & Eleni Tsota, 2023. "Reintroducing Industry Effects in Capital Structure Determination of SMEs," Business & Entrepreneurship Journal, SCIENPRESS Ltd, vol. 12(2), pages 1-4.
    14. Bruder, Jana & Neuberger, Doris & Räthke-Döppner, Solvig, 2008. "Financial constraints of ethnic entrepreneurship: Evidence from Germany," Thuenen-Series of Applied Economic Theory 84, University of Rostock, Institute of Economics.
    15. Jean Bonnet & Sylvie Cieply & Marcus Dejardin, 2005. "Financial constraints on new firms: looking for regional disparities," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 48(3), pages 217-246.
    16. Richard B. Carter & Howard Van Auken, 2007. "Capital Acquisition Attitudes: Gender and Experience," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 12(2), pages 55-74, Fall.
    17. Francisco Sogorb- Mira, 2002. "How Sme Uniqueness Affects Capital Structure: Evidence From A 1994-1998 Spanish Data Panel," Working Papers. Serie EC 2002-18, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    18. Brigitte Hoogendoorn & Daniela Guerra & Peter Zwan, 2015. "What drives environmental practices of SMEs?," Small Business Economics, Springer, vol. 44(4), pages 759-781, April.
    19. Segelod, Esbjörn, 1995. "Resource allocation in divisionalized groups : a survey of major Swedish groups," Working Papers 1995:3, Uppsala University, Department of Business Studies.
    20. Padachi Kesseven D & Carole Howorth, 2014. "Focus on working capital management practices among Mauritian SMEs: Survey evidence and empirical analysis," E3 Journal of Business Management and Economics., E3 Journals, vol. 5(4), pages 097-108.

    More about this item

    Keywords

    Small Firm ; Small Business ; Manufacturing; DCF; Discounted Cash Flow;
    All these keywords.

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pep:journl:v:2:y:1993:i:3:p:233-249. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Craig Everett (email available below). General contact details of provider: https://edirc.repec.org/data/bapepus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.