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

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  • Stefan Linder

    (WHU, Vallendar Germany)

Abstract

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.

Suggested Citation

  • Stefan Linder, 2005. "Fifty years of Research on Accuracy of Capital Expenditure Project Estimates: A Review of the Findings and their Validity," Finance 0504023, EconWPA.
  • Handle: RePEc:wpa:wuwpfi:0504023 Note: Type of Document - pdf; pages: 24. Working paper in Acrobat Reader format.
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    File URL: http://econwpa.repec.org/eps/fin/papers/0504/0504023.pdf
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    References listed on IDEAS

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    1. Ausloos, M. & Bronlet, Ph., 2003. "Strategy for investments from Zipf law(s)," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 324(1), pages 30-37.
    2. Hokky Situngkir & Yohanes Surya, 2004. "Agent-based Model Construction In Financial Economic System," Finance 0405006, EconWPA.
    3. Hokky Situngkir & Yohanes Surya, 2004. "Agent-based Model Construction In Financial Economic System," Departmental Working Papers wpa2004, Bandung Fe Institute.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Capital budgeting; Capital Expenditures; Estimation Accuracy; Forecasting; Post-Audit.;

    JEL classification:

    • G - Financial Economics

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