Shareholder Value or Competitive Advantage? Evidence from Hurdle Rates

Ciaran Driver and Paul Temple

No 104, School of Economics Discussion Papers from School of Economics, University of Surrey

Abstract: Economic theory suggests several plausible reasons why firms may employ hurdle rates for capital investment appraisal that differ from discount rates. Using a sample of business units from the PIMS data bank of North American companies we find that hurdle rates are frequently below and also frequently above matched data on discount rates. Using multinomial logit analysis we find that variables representing the opportunity for strategic investment or the motivation for such investment increase the probability of managerial or strategic behaviour. We also find evidence for an irreversibility effect.

Keywords: Hurdle rate; Investment; Strategy; Governance; PIMS database; Multinomial logit (search for similar items in EconPapers)
JEL-codes: E22 G3 L2 L6 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2004-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:sur:surrec:0104

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