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Fifty years of Research on Accuracy of Capital Expenditure Project Estimates: A Review of the Findings and their Validity

Listed author(s):
  • Stefan Linder

    (WHU, Vallendar Germany)

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.

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Paper provided by EconWPA in its series Finance with number 0504023.

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Length: 24 pages
Date of creation: 30 Apr 2005
Handle: RePEc:wpa:wuwpfi:0504023
Note: Type of Document - pdf; pages: 24. Working paper in Acrobat Reader format.
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