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Determinants of capital budgeting methods and hurdle rates in Nordic firms

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  • Tor Brunzell
  • Eva Liljeblom
  • Mika Vaihekoski

Abstract

type="main" xml:lang="en"> We study the determinants for the choice of capital budgeting methods and the setting of hurdle rates (WACCs) in five Nordic countries. Combining survey data with a rich set of determinants, including ownership data, CFO characteristics, and financial data, we find that the use of the Net Present Value method and the sophistication of the capital budgeting are related to firm characteristics, variables proxying for real option features in investments and CFO characteristics (age and education). We also find support for significantly higher hurdle rates than motivated by economic theory. The premium is weakly positively related to managerial short-term pressure and strongly negatively related to the sophistication level of the firm’s capital budgeting.

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  • Tor Brunzell & Eva Liljeblom & Mika Vaihekoski, 2013. "Determinants of capital budgeting methods and hurdle rates in Nordic firms," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 53(1), pages 85-110, March.
    • Handle: RePEc:bla:acctfi:v:53:y:2013:i:1:p:85-110
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    File URL: http://hdl.handle.net/10.1111/j.1467-629X.2011.00462.x
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