Intertemporal capital budgeting

Andrew H. Roper and Martin E. Ruckes

Journal of Banking & Finance, 2012, vol. 36, issue 9, 2543-2551

Abstract: This paper analyzes the optimal capital budgeting mechanism when divisional managers are privately informed about the arrival of future investment projects. Consistent with field study evidence, an optimal allocation mechanism can include a stipulation that a capital request for discretionary investment will be declined with positive probability in the period after a significant investment was made even though this is ex post suboptimal. The model derives a number of empirical predictions regarding capital budgeting and the investment of financially constrained firms.

Keywords: Capital budgeting; Investment policy; Incentives (search for similar items in EconPapers)
JEL-codes: D82 G31 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:9:p:2543-2551

DOI: 10.1016/j.jbankfin.2012.05.012

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