Purpose: This paper aims to extend and contribute to prior research on the association between company characteristics and choice of capital budgeting methods (CBMs). Design/methodology/approach: A multivariate regression analysis on questionnaire data from 2005 and 2008 is used to study which factors determine the choice of CBMs in Swedish listed companies. Findings: Our results supported hypotheses that Swedish listed companies have become more sophisticated over the years (or at least less unsophisticated) which indicates a closing of the theory-practice gap; that companies with greater leverage used payback more often; and that companies with stricter debt targets and less management ownership employed accounting rate of return more frequent. Moreover, larger companies used CBMs more often. Originality/value: The paper contributes to prior research within this field by being the first Swedish study to examine the association between use of CBMs and as many as twelve independent variables, including changes over time, by using multivariate regression analysis. The results are compared to a US and a continental European study.

This article investigates the extent to which companies listed on the Nasdaq OMX (NOMX) and the Euronext Amsterdam (EA), in their 2005 and 2008 annual reports, complied with the disclosure requirements in IAS 36 paragraph 134, as well as the factors that explain why some companies complied with the standard to a higher extent than did other ones. Swedish and Dutch listed companies are chosen as the accounting oversight system differs between the countries. The relationship between the dependent variable, that is, information disclosed in accordance with IAS 36 paragraph 134 in the annual reports in Swedish and Dutch listed companies, and the independent variables, that is, accounting oversight, auditing company, size, leverage, future prospects, industry and learning, is examined. The results reveal that Swedish companies listed on the NOMX were more compliant than their Dutch counterparts in 2005, possibly because of the (historically) weak Dutch institutional oversight system. The compliance level seems to have increased in both Swedish and Dutch companies over time, thus indicating learning. In 2008, there was no significant difference in compliance level between Sweden and the Netherlands, which suggests convergence. Size significantly affected the compliance level in Sweden only, and leverage affected the compliance level in the Netherlands only. Moreover, non-financial companies were more compliant in both countries. The independent variables auditing company and future prospects did not seem to have a significant effect on the compliance level.

In this paper Swedish listed companies' use of capital budgeting and cost of capital estimation methods in 2005 and 2008 are examined. The relation between company characteristics and choice of methods is investigated and both within-country longitudinal and cross-country comparisons are made. Larger companies seem to have used capital budgeting methods more frequently than smaller companies. When compared to U.S. and continental European companies, Swedish listed companies employed capital budgeting methods less frequently. In 2005 the most common method for establishing the cost of equity was by asking the investors what return they required. By 2008 CAPM was instead the most utilised method, which could indicate greater sophistication. The use of project risk when evaluating investments also seems to have gained in popularity, while the use of company risk declined. Overall, the use of sophisticated capital budgeting and cost of capital estimation methods seem to be rising and the use of less sophisticated methods declining.Keywords: Capital Budgeting Method; Cost of Equity; Project Risk; Swedish-listed Companies INTRODUCTIONophisticated capital budgeting methods are often "highly recommended" by financial management textbooks, e.g. net present value (NPV), whereas others that are simpler are not, e.g. undiscounted payback (e.g. Brealey and Myers, 2003;Lumby and Jones, 2003;Ross et al., 2005;Smart et al., 2007). Theoretical advice is also given on how to estimate the cost of capital. Estimation models like the capital asset pricing model (CAPM) are frequently referred to and instructions how to calculate project discounts rates, contingent on the underlying risk of the project, instead of using a single company discount rate, are presented (e.g. Brealey and Myers, 2003;Lumby and Jones, 2003;Ross et al., 2005;Smart et al., 2007). Furthermore, multinationals are advised to consider risk factors such as political and foreign exchange risk (Shapiro, 2002;Eiteman et al., 2006). Still, the practical use of economic models can, as earlier research has shown (Graham and Harvey, 2001;Sandahl and Sjögren, 2003;Brounen et al., 2004;Danielson and Scott, 2006), deviate from what is prescribed by normative theory. Management, possibly with other goals than the principal (Jensen and Meckling, 1976), decides whether the recommended methods should be employed or not. The goal incongruence together with the information asymmetry between management and the shareholders, might lead to different practical behaviour than what is recommended by textbooks (Narayanan, 1985). And moreover, also in an ideal world where the principalagent problem does not exist or is limited, there might be a discrepancy between theory and practice. Methods that from a theoretical perspective at first sight have flaws can in practice namely be efficient and lead to shareholder wealth maximisation. Guthrie (1997, 2006) showed, for example, that the employment of the payback method could be rational since the payback time approximates the optio...

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