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Evaluating the Capacity of Standard Investment Appraisal Methods

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  • Mehari Mekonnen Akalu

    (Erasmus University Rotterdam)

Abstract

The survey findings indicate the existence of gap between theory and practice of capital budgeting. Standard appraisal methods have shown a wider project value discrepancy, which is beyond and above the contingency limit. In addition, the research has found the growing trend in the use of value management models. The presence of correlation between the frequency of monitoring and project value discrepancy, and the absence of uniformity in the use of evaluation methods throughout the life span of a project are among the results of the study.

Suggested Citation

  • Mehari Mekonnen Akalu, 2002. "Evaluating the Capacity of Standard Investment Appraisal Methods," Tinbergen Institute Discussion Papers 02-082/1, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20020082
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    File URL: https://papers.tinbergen.nl/02082.pdf
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    References listed on IDEAS

    as
    1. Mao, James C T, 1970. "Survey of Capital Budgeting: Theory and Practice," Journal of Finance, American Finance Association, vol. 25(2), pages 349-360, May.
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    3. Glen C. Arnold & Panos D. Hatzopoulos, 2000. "The Theory‐Practice Gap in Capital Budgeting: Evidence from the United Kingdom," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(5‐6), pages 603-626, June.
    4. Glen C. Arnold & Panos D. Hatzopoulos, 2000. "The Theory-Practice Gap in Capital Budgeting: Evidence from the United Kingdom," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(5&6), pages 603-626.
    5. 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.
    6. Schall, Lawrence D & Sundem, Gary L & Geijsbeek, William R, Jr, 1978. "Survey and Analysis of Capital Budgeting Methods," Journal of Finance, American Finance Association, vol. 33(1), pages 281-287, March.
    7. Trahan, Emery A. & Gitman, Lawrence J., 1995. "Bridging the theory-practice gap in corporate finance: A survey of chief financial officers," The Quarterly Review of Economics and Finance, Elsevier, vol. 35(1), pages 73-87.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Capital Budgeting; Investment Appraisal; DCF Methods; Project Analysis; Shareholder Value Analysis; Value Management Techniques.;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • L6 - Industrial Organization - - Industry Studies: Manufacturing
    • L8 - Industrial Organization - - Industry Studies: Services
    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities
    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General
    • O22 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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