What Determines the Use of Capital Budgeting Methods? Evidence from Swedish Listed Companies

Sven-Olov Daunfeldt^1, and Fredrik Hartwig²

¹Department of Trade, Industry and Business, HUI Research and Dalarna University, Stockholm and Borlänge, Sweden

²Department of Trade, Industry and Business, Dalarna University, Borlänge, Sweden

Cite this paper:
Sven-Olov Daunfeldt and Fredrik Hartwig. What Determines the Use of Capital Budgeting Methods? Evidence from Swedish Listed Companies. Journal of Finance and Economics. 2014; 2(4):101-112. doi: 10.12691/jfe-2-4-1

Abstract

Purpose: This paper aims to extend and contribute to prior research on the association between company characteristics and choice of capital budgeting methods (CBMs). Design/methodology/approach: A multivariate regression analysis on questionnaire data from 2005 and 2008 is used to study which factors determine the choice of CBMs in Swedish listed companies. Findings: Our results supported hypotheses that Swedish listed companies have become more sophisticated over the years (or at least less unsophisticated) which indicates a closing of the theory-practice gap; that companies with greater leverage used payback more often; and that companies with stricter debt targets and less management ownership employed accounting rate of return more frequent. Moreover, larger companies used CBMs more often. Originality/value: The paper contributes to prior research within this field by being the first Swedish study to examine the association between use of CBMs and as many as twelve independent variables, including changes over time, by using multivariate regression analysis. The results are compared to a US and a continental European study.

Keywords:
investment decisions capital budgeting methods project valuation Swedish listed companies CFO sophisticated use

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