capital budgeting
3 : Literature Review in Capital Budgeting Studies
3.1
Introduction
3.2
Literature Review : Foreign Studies
3.3
Literature Review : Indian Studies
3.4
Conclusion
92
Chapter 3 : Literature Review in Capital Budgeting Studies
3.1
Introduction:
A number of researchers in finance and accounting have examined corporate capital budgeting practices. Many of these articles survey corporate managers and report the frequency with which various evaluation methods, such as payback, internal rate of return
(IRR), net present value (NPV), discounted payback, profitability index (PI), or average return on book value are used. The best known field studies about the practices of corporate finance are Gitman and Forrester’s (1977) study of Capital Budgeting
Techniques Used by Major U.S. Firms, Porwal’s (1976) study on Capital Budgeting
Techniques and Profitability and Graham and Harvey’s (2001) study on capital budgeting, cost of capital, and capital structure. It is believed that the findings of this study in the context of India are useful to academia and practitioners in learning how corporate India operates, developing new theories, and identifying areas where finance theory is not implemented.
What are the capital budgeting tools and techniques being practiced by the industry and how popular are they? Do firms use methods that help to maximize the firm value? The review of empirical surveys and studies help to find answers to these questions.
The changes in capital budgeting procedures over the decades have been well documented in prior studies. The research of Canada and Miller, Fremgen, Gitman and
Forrester, Kim and Farragher, Stanley Block all indicate that increasingly sophisticated capital budgeting procedures have been put in practice.
However, a generalization that more sophisticated practices take place across all industries is subject to investigation and challenge. This consideration is important because an
3.1
Introduction
3.2
Literature Review : Foreign Studies
3.3
Literature Review : Indian Studies
3.4
Conclusion
92
Chapter 3 : Literature Review in Capital Budgeting Studies
3.1
Introduction:
A number of researchers in finance and accounting have examined corporate capital budgeting practices. Many of these articles survey corporate managers and report the frequency with which various evaluation methods, such as payback, internal rate of return
(IRR), net present value (NPV), discounted payback, profitability index (PI), or average return on book value are used. The best known field studies about the practices of corporate finance are Gitman and Forrester’s (1977) study of Capital Budgeting
Techniques Used by Major U.S. Firms, Porwal’s (1976) study on Capital Budgeting
Techniques and Profitability and Graham and Harvey’s (2001) study on capital budgeting, cost of capital, and capital structure. It is believed that the findings of this study in the context of India are useful to academia and practitioners in learning how corporate India operates, developing new theories, and identifying areas where finance theory is not implemented.
What are the capital budgeting tools and techniques being practiced by the industry and how popular are they? Do firms use methods that help to maximize the firm value? The review of empirical surveys and studies help to find answers to these questions.
The changes in capital budgeting procedures over the decades have been well documented in prior studies. The research of Canada and Miller, Fremgen, Gitman and
Forrester, Kim and Farragher, Stanley Block all indicate that increasingly sophisticated capital budgeting procedures have been put in practice.
However, a generalization that more sophisticated practices take place across all industries is subject to investigation and challenge. This consideration is important because an