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Sophisticated capital budgeting selection techniques and firm performance

  • Susan F. Haka
  • Lawrence A. Gordon
  • George E. Pinches

Abstract

Firms using sophisticated capital budgeting techniques (i. e., those that employ present value analysis and account for risk) should theoretically perform better than firms using naive models such as the payback period or accounting rate of return. However, previous empirical work examining this question has produced mixed results. To correct for limitations in these studies, several tests were conducted on firms that adopted sophisticated selection techniques versus a control group of firms that employed naive techniques. After controlling for differences in systematic risk, industry effects, and size, interrupted time-series tests of relative market returns were performed. Based on the results of this study we conclude that the adoption of sophisticated capital budgeting selection techniques will not, per se, result in superior firm performance. It is possible that the adoption of sophisticated selection techniques is one of many policies the firm pursues in the face of economic stress, and this, in combination with other policies, may help to bring about economic recovery for the firm.

Keywords

Firm Performance Selection Technique Control Firm Capital Budget Adjusted Return 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer Science+Business Media Dordrecht 1985

Authors and Affiliations

  • Susan F. Haka
    • 1
  • Lawrence A. Gordon
    • 2
  • George E. Pinches
    • 3
  1. 1.Michigan State UniversityUSA
  2. 2.University of MarylandUSA
  3. 3.University of KansasUSA

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