Capital Budgeting and Political Risk: Empirical Evidence

Holmén, Martin; Pramborg, Bengt

doi:10.2139/ssrn.881750

Cited by 24 publications

(38 citation statements)

References 43 publications

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“…The use of capital budgeting methods by U.S. and European listed companies has been studied extensively (e.g., besides those already mentioned, Pike, 1988Pike, , 1989Pike, , 1996Pike and Sharp, 1989;Sangster, 1993;Block, 2007;Hermes et al, 2007). [1] There have also been some earlier studies of Sweden (Renck, 1966;Tell, 1978;Yard, 1987;Andersson, 1994;Segelod, 1995;Sandahl and Sjögren, 2003;Holmén and Pramborg, 2009;Hartwig, 2012).…”

Section: Introductionmentioning

confidence: 99%

What Determines the Use of Capital Budgeting Methods? Evidence from Swedish Listed Companies

Daunfeldt¹,

Hartwig

2014

JFE

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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.

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Section: Introductionmentioning

confidence: 99%

What Determines the Use of Capital Budgeting Methods? Evidence from Swedish Listed Companies

Daunfeldt¹,

Hartwig

2014

JFE

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“…Moreover, the results are compared to earlier Swedish studies, ranging from the 1960s to the new millennium (Renck, 1966;Tell, 1978;Yard, 1987, Andersson 1994Segelod, 1995;Sandahl and Sjögren, 2003;Holmén and Pramborg, 2009). Thus, except for exploring the association between company characteristics and choice of methods in Swedish listed companies, this study also examines changes over time (in Swedish listed companies) and differences in space (between Swedish and U.S./continental European listed companies).…”

mentioning

confidence: 96%

The Use Of Capital Budgeting And Cost Of Capital Estimation Methods In Swedish-Listed Companies

Hartwig

2012

JABR

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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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“…Zanini, M.Q.S., Souza, P. Lunkes, R.J. Práticas de orçamento de capital: um estudo em empresas hoteleiras de São Paulo, Rio de Janeiro e Salvador De maneira geral, percebe-se que os estudos anteriores apresentam diferentes resultados quanto à utilização dos métodos de avaliação do orçamento de investimentos, mas o Período de Payback aparece nos estudos como o mais utilizado nos Estados Unidos (Schall, Sundem & Junior Geijsbeek, 1978;White, Miles & Munilla, 1997), no Reino Unido (Pike, 1982(Pike, , 1985(Pike, , 1988Peel & Bridge, 1998;Brounen, De Jong & Koedijk, 2004), na Malásia (Kwong, 1986), no Japão (Peel & Bridge, 1989), na Alemanha (Peel & Bridge, 1989;Brounen, De Jong & Koedijk, 2004), na Suécia (Sandahl & Sjögren, 2003;Holmén & Pramborg, 2009), na França e na Holanda (Brounen, De Jong & Koedijk, 2004) e em Hong Kong (Lam, Wang & Lam, 2007).…”

Section: Métodosunclassified

“…Dentro dessa temática, diversos autores têm feito pesquisas em países desenvolvidos que proporcionam uma visão internacional sobre as práticas de orçamento de capital (Schall, Sundem & Junior Geijsbeek, 1978;Pike, 1982;Pike, 1985;Kwong, 1986;Pike & Sharp, 1989;White, Miles & Munilla, 1997;Pike, 1988;Peel & Bridge, 1998;Peel & Bridge, 1999;Arnold & Hatzopoulos, 2000;Graham & Harvey, 2001;Ryan & Ryan, 2002;Sandahl & Sjogren, 2003;Block, 2003;Brounen, De Jong & Koedijk, 2004;Lazaridis, 2004;Toit & Pienaar, 2005;Hermes, Smid & Yao, 2007;Lam, Wang & Lam, 2007;Truong, Partington & Peat, 2008;Correia & Cramer, 2008;Holmén & Pramborg, 2009;Brijlal & Quesada, 2009;Holmén & Pramborg, 2009;Chazi, Terra & Zanella, 2010;Bennouna, Meredith & Marchant, 2010;Khamees, Al-Fayoumi & Al-Thuneibat, 2010;Hall & Millard, 2011;Viviers & Cohen, 2011;Maquieira, Preve & Allende, 2012), contudo, há poucos estudos envolvendo empresas hoteleiras.…”

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Práticas de orçamento de capital: um estudo em empresas hoteleiras de São Paulo, Rio de Janeiro e Salvador

Zanini

Souza

Lunkes

2013

RBTUR

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O orçamento é considerado um processo importante para a gestão e comunicação da companhia, para auxiliar a identificação de gargalos em potenciais, definir metas e objetivos e avaliar futuras performances. Sendo assim, tem-se como objetivo identificar e analisar as práticas de orçamento de capital adotadas pelas empresas hoteleiras das cidades São Paulo, Rio de Janeiro e Salvador. Os dados foram coletados por meio da aplicação de questionários nas três cidades, constituindo uma população de 12 hotéis associados à ABIH (Associação Brasileira da Indústria de Hotéis). Os resultados mostram que o Índice de Rentabilidade é considerado dominante na avaliação do orçamento pelas empresas hoteleiras brasileiras, assim como o Custo do Capital Próprio na definição da taxa mínima de retorno aceitável, a qual é geralmente igual para todos os investimentos. No tocante às etapas mais críticas do processo de análise de investimento, são consideradas pelos gestores à definição do projeto e a previsão do fluxo de caixa. Quanto ao grau de previsibilidade do ambiente hoteleiro, o comportamento dos fornecedores é avaliado como parcialmente imprevisível, o mercado financeiro como eventualmente previsível e o governo avaliado como totalmente imprevisível. E, adicionalmente a isso, obteve-se que os dados macroeconômicos e a expectativa de vida útil são informações obtidas com pouca ou nenhuma frequência pelo sistema de informação dos hotéis.

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Capital Budgeting and Political Risk: Empirical Evidence

Cited by 24 publications

References 43 publications

What Determines the Use of Capital Budgeting Methods? Evidence from Swedish Listed Companies

What Determines the Use of Capital Budgeting Methods? Evidence from Swedish Listed Companies

The Use Of Capital Budgeting And Cost Of Capital Estimation Methods In Swedish-Listed Companies

Práticas de orçamento de capital: um estudo em empresas hoteleiras de São Paulo, Rio de Janeiro e Salvador

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