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Fifty years of Research on Accuracy of Capital Expenditure Project Estimates: A Review of the Findings and their Validity

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  • Stefan Linder

    (WHU, Vallendar Germany)

Abstract

Capital budgeting research has traditionally focused on ever improving the methods used for evaluating projects. Since it seems futile to use sophisticated evaluation techniques if their input data – that is, estimates of cash inflows and outflows – are of inferior quality, it is justifiable to call this focus into question by exploring forecasting accuracy. In order to do so, the article analyzes the empirical findings on estimation error gathered in 35 studies published between 1954 and 2002. As the review shows, over-optimism seems to be a relevant problem in capital expenditure project forecasting. This calls the traditional research focus into question. More research effort targeted at the misestimation bias in capital budgeting and at ways to improve forecasting accuracy seems necessary.

Suggested Citation

  • Stefan Linder, 2005. "Fifty years of Research on Accuracy of Capital Expenditure Project Estimates: A Review of the Findings and their Validity," Finance 0504023, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:0504023
    Note: Type of Document - pdf; pages: 24. Working paper in Acrobat Reader format.
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0504/0504023.pdf
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    Cited by:

    1. Michael J. Turner & Chris Guilding, 2012. "Factors affecting biasing of capital budgeting cash flow forecasts: evidence from the hotel industry," Accounting and Business Research, Taylor & Francis Journals, vol. 42(5), pages 519-545, December.

    More about this item

    Keywords

    Capital budgeting; Capital Expenditures; Estimation Accuracy; Forecasting; Post-Audit.;
    All these keywords.

    JEL classification:

    • G - Financial Economics

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