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Investment Appraisal Practice in the European Union Countries

Author

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  • Marcin Pawlak
  • Dariusz Zarzecki

Abstract

Purpose: The goal of the paper was to perform a literature study, to determine the state of the theory and practice of investment valuation in the countries of the European Union which should be the starting point for further research. Design/Methodology/Approach: In this paper, an analysis of literature sources was carried out about assessing the effectiveness of investments in European Union countries. The conducted review and description of the found scientific sources is aimed at determining the current state of investment valuation practice, a description of the research carried out so far, which will allow us to determine the starting point for a new study. Findings: During preliminary research found it profoundly surprising that despite the huge potential impact of better capital allocation, there are two main problems regarding investment appraisal practices in European companies. First and foremost, a large part of even the largest European corporations do not use advanced investment appraisal techniques or apply them only to a limited extent. Secondly, yet there has not been a research into practical applications of investment appraisal methodologies that would cover the entire Single Market, i.e., the European Economic Area and Switzerland. Practical Implications: Obtained conclusions allowed us to recommend a study of the relationship between investment appraisal practice and company performance for all the countries of the European Single Market. Originality/value: Further research should identify the differences regarding the use of investment appraisal methods between countries as well as sectors. It is expected that the conclusions from projected future research will considerably broaden the knowledge about a particularly important area of corporate activity – making decisions regarding resource allocation.

Suggested Citation

  • Marcin Pawlak & Dariusz Zarzecki, 2020. "Investment Appraisal Practice in the European Union Countries," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 2), pages 687-699.
    • Handle: RePEc:ers:journl:v:xxiii:y:2020:i:special2:p:687-699
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    References listed on IDEAS

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    1. Dirk Brounen & Abe de Jong & Kees Koedijk, 2004. "Corporate Finance in Europe: Confronting Theory with Practice," Financial Management, Financial Management Association, vol. 33(4), Winter.
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    4. Glen C. Arnold & Panos D. Hatzopoulos, 2000. "The Theory-Practice Gap in Capital Budgeting: Evidence from the United Kingdom," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(5&6), pages 603-626.
    5. Graham, John R. & Harvey, Campbell R. & Rajgopal, Shiva, 2005. "The economic implications of corporate financial reporting," Journal of Accounting and Economics, Elsevier, vol. 40(1-3), pages 3-73, December.
    6. Hermes, Niels & Smid, Peter & Yao, Lu, 2007. "Capital budgeting practices: A comparative study of the Netherlands and China," International Business Review, Elsevier, vol. 16(5), pages 630-654, October.
    7. Brounen, D. & de Jong, A. & Koedijk, C.G., 2004. "Corporate Finance In Europe Confronting Theory With Practice," ERIM Report Series Research in Management ERS-2004-002-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    8. Andor, Gyorgy & Mohanty, Sunil K. & Toth, Tamas, 2015. "Capital budgeting practices: A survey of Central and Eastern European firms," Emerging Markets Review, Elsevier, vol. 23(C), pages 148-172.
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    Cited by:

    1. Michelle Baddeley & Geoff Harcourt, 2021. "A Behavioural Model of Investment Appraisal and its Implications for the Macroeconomy," Working Paper Series 2021/05, Economics Discipline Group, UTS Business School, University of Technology, Sydney.

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    More about this item

    Keywords

    Capital budgeting; capital cost; risk analysis; investment valuation methods.;
    All these keywords.

    JEL classification:

    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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