A Positive Analysis of Corporate Capital Budgeting Practices

John J Binder and J Scott Chaput

Review of Quantitative Finance and Accounting, 1996, vol. 6, issue 3, 245-57

Abstract: Although the academic literature has long argued that discounted cash flow methods are superior to other capital budgeting rules, these methods have only fairly recently come into widespread use. This article points out that there are both costs and benefits to using discounting rules such as net present value. Therefore, they may often not work better in practice than nondiscounting methods. Empirically, the use of discounting methods is positively correlated with market interest rates and the dissemination of information about these tools and negatively correlated with the degree of uncertainty in the economy, which is consistent without hypotheses. Copyright 1996 by Kluwer Academic Publishers

Date: 1996
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