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The Capital Budgeting Process: Incentives and Information

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Author Info
Harris, Milton
Raviv, Artur

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Abstract

The authors study the capital allocation process within firms. Observed budgeting processes are explained as a response to decentralized information and incentive problems. It is shown that these imperfections can result in underinvestment when capital productivity is high and overinvestment when it is low. The authors also investigate how the budgeting process may be expected to vary with firm or division characteristics, such as investment opportunities and the technology for information transfer. Copyright 1996 by American Finance Association.

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Publisher Info
Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 51 (1996)
Issue (Month): 4 (September)
Pages: 1139-74
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Handle: RePEc:bla:jfinan:v:51:y:1996:i:4:p:1139-74

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  1. Alonso, Ricardo & Matouschek, Niko, 2005. "Relational Delegation," IZA Discussion Papers 1454, Institute for the Study of Labor (IZA). [Downloadable!]
  2. Jeremy C. Stein, 2000. "Information Production and Capital Allocation: Decentralized vs. Hierarchical Firms," NBER Working Papers 7705, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Antle, Rick & Bogetoft, Peter & Stark, Andrew W., 2000. "Information Systems, Incentives and the Timing of Investment," Unit of Economics Working papers 24201, Royal Veterinary and Agricultural University, Food and Resource Economic Institute. [Downloadable!]
  4. Alonso, Ricardo & Matouschek, Niko, 2005. "Optimal Delegation," CEPR Discussion Papers 5289, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. Steven R. Grenadier & Neng Wang, 2005. "Investment Timing, Agency, and Information," NBER Working Papers 11148, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Han, Bing & Hirshleifer, David & Persons, John, 2007. "Promotion Tournaments and Capital Rationing," MPRA Paper 6496, University Library of Munich, Germany. [Downloadable!]
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  7. Friebel, Guido & Raith, Michael, 2006. "Resource Allocation and Firm Scope," CEPR Discussion Papers 5763, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Mitchell Berlin, 1999. "Jack of all trades? Product diversification in nonfinancial firms," Business Review, Federal Reserve Bank of Philadelphia, issue May, pages 15-29. [Downloadable!]
  9. Reichelstein, Stefan J. & Dutta, Sunil, 2001. "Controlling Investment Decisions: Depreciation and Capital Charges," Research Papers 1722, Stanford University, Graduate School of Business. [Downloadable!]
  10. Inderst, Roman & Mueller, Holger M & Muennich, Felix, 2006. "Financing a Portfolio of Projects," CEPR Discussion Papers 5711, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  11. Szu-Wen Chou, 2002. "Flattened Resource Allocation, Hierarch Design and the Boundaries of the Firm," Levine's Working Paper Archive 618897000000000056, David K. Levine. [Downloadable!]
  12. Arnoud W.A. Boot & Anjolein Schmeits, 1996. "Market Discipline in Conglomerate Banks: Is an Internal Allocation of Cost of Capital Necessary as an Incentive Device?," Center for Financial Institutions Working Papers 96-39, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
  13. Michael S. Gibson, 1998. "The implications of risk management information systems for the organization of financial firms," International Finance Discussion Papers 632, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  14. Godbillon-Camus, Brigitte & Godlewski, Christophe, 2005. "Credit risk management in banks: Hard information, soft Information and manipulation," MPRA Paper 1873, University Library of Munich, Germany. [Downloadable!]
  15. Sunil Dutta & Stefan Reichelstein, 2000. "Controlling Investment Decisions: Hurdle Rates and Intertemporal Cost Allocation," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  16. Jahnke, Hermann & Simons, Dirk, 2008. "A rationale for the payback criterion," Sonderforschungsbereich 504 Publications 08-15, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
  17. Claessens, Stijn & Djankov, Simeon & Fan, Joseph P.H. & Lang, Larry H.P., 2001. "The Benefits and Costs of Internal Markets: Evidence from Asia's Financial Crisis," CEI Working Paper Series 2001-15, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  18. Stoughton, Neal & Zechner, Josef, 1999. "Optimal Capital Allocation Using RAROC And EVA," CEPR Discussion Papers 2344, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  19. M. Idriss GHODBANE, 2002. "Centralization Versus Decentralization in Credit Lending," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002002, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
  20. Stoughton, Neal & Zechner, Josef, 2004. "Optimal Capital Allocation Using RAROC(tm) and EVA," CEPR Discussion Papers 4169, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  21. Mehari Mekonnen Akalu, 2002. "Evaluating the Capacity of Standard Investment Appraisal Methods," Tinbergen Institute Discussion Papers 02-082/1, Tinbergen Institute. [Downloadable!]
  22. Alonso, Ricardo & Matouschek, Niko, 2005. "Relational Delegation," CEPR Discussion Papers 4870, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  23. Eva Ropero Moriones, 2005. "Limited Liability In Business Groups," Business Economics Working Papers wb057617, Universidad Carlos III, Departamento de Economía de la Empresa. [Downloadable!]
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