TY - JOUR
T1 - The theory-practice gap in capital budgeting
T2 - Evidence from the United Kingdom
AU - Arnold, Glen C.
AU - Hatzopoulos, Panos D.
PY - 2000/6/1
Y1 - 2000/6/1
N2 - We report the results of a survey of capital budgeting techniques used by United Kingdom firms. Where possible, the evidence is combined with data collected over a 22 year period to provide a basis for the discussion of causes of trends. We observe that there has been a substantial narrowing of the theory-practice gap in the use of project appraisal methods. The gap has also narrowed in other areas: the analysis of risk, inflation adjustment, capital budget preparation, WACC calculation and post-auditing. However, there are other elements of capital budgeting theory, e.g. probability and beta analysis which have been adopted by very few practising managers. We also discuss non-economic projects, capital rationing and hurdle rates.
AB - We report the results of a survey of capital budgeting techniques used by United Kingdom firms. Where possible, the evidence is combined with data collected over a 22 year period to provide a basis for the discussion of causes of trends. We observe that there has been a substantial narrowing of the theory-practice gap in the use of project appraisal methods. The gap has also narrowed in other areas: the analysis of risk, inflation adjustment, capital budget preparation, WACC calculation and post-auditing. However, there are other elements of capital budgeting theory, e.g. probability and beta analysis which have been adopted by very few practising managers. We also discuss non-economic projects, capital rationing and hurdle rates.
UR - http://www.scopus.com/inward/record.url?scp=0003247830&partnerID=8YFLogxK
U2 - 10.1111/1468-5957.00327
DO - 10.1111/1468-5957.00327
M3 - Article
AN - SCOPUS:0003247830
SN - 0306-686X
VL - 27
SP - 603
EP - 626
JO - Journal of Business Fnance and Accounting
JF - Journal of Business Fnance and Accounting
IS - 5-6
ER -