The theory-practice gap in capital budgeting

Evidence from the United Kingdom

Glen C. Arnold, Panos D. Hatzopoulos

Research output: Contribution to journalArticle

Abstract

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.
Original languageEnglish
Pages (from-to)603-626
Number of pages24
JournalJournal of Business Fnance and Accounting
Volume27
Issue number5-6
DOIs
Publication statusPublished - 1 Jun 2000

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Practice theory
Capital budgeting
Probability theory
Hurdle rates
Auditing
Inflation risk
Capital projects
Managers
Project appraisal
Preparation
Rationing

Cite this

Arnold, Glen C. ; Hatzopoulos, Panos D. / The theory-practice gap in capital budgeting : Evidence from the United Kingdom. In: Journal of Business Fnance and Accounting. 2000 ; Vol. 27, No. 5-6. pp. 603-626.
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The theory-practice gap in capital budgeting : Evidence from the United Kingdom. / Arnold, Glen C.; Hatzopoulos, Panos D.

In: Journal of Business Fnance and Accounting, Vol. 27, No. 5-6, 01.06.2000, p. 603-626.

Research output: Contribution to journalArticle

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