Capital budgeting research has traditionally focused on ever improving the methods used for evaluating projects. Since it seems futile to use sophisticated evaluation techniques if their input data – that is, estimates of cash inflows and outflows – are of inferior quality, it is justifiable to call this focus into question by exploring forecasting accuracy. In order to do so, the article analyzes the empirical findings on estimation error gathered in 35 studies published between 1954 and 2002. As the review shows, over-optimism seems to be a relevant problem in capital expenditure project forecasting. This calls the traditional research focus into question. More research effort targeted at the misestimation bias in capital budgeting and at ways to improve forecasting accuracy seems necessary.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by EconWPA in its series Finance with number
0504023.