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.
Arnold, G. C., & Hatzopoulos, P. D. (2000). The theory-practice gap in capital budgeting: Evidence from the United Kingdom. Journal of Business Fnance and Accounting, 27(5-6), 603-626. https://doi.org/10.1111/1468-5957.00327