Capital Budgeting Practices in Spain

BRQ Business Research Quarterly (2015) 18, 37-56

20 Pages Posted: 23 Nov 2014 Last revised: 1 Oct 2016

See all articles by Pablo de Andrés

Pablo de Andrés

Universidad Autonoma de Madrid; ECGI

Gabriel de la Fuente

University of Valladolid - Department of Financial Economics and Accounting

Pablo San Martin

Universidad Catolica de la Santisima Concepcion

Date Written: August 29, 2014

Abstract

This paper seeks to shed further light on the capital budgeting techniques used by Spanish companies. Our paper posits that the gap between theory and practice might be related to the nature of sources of value and to the efficiency of mechanisms aligning managerial and shareholder incentives, rather than to resource restrictions or model misinterpretation. We analyze data from a survey conducted in 2011, the final sample comprising 140 non-financial Spanish firms. Our findings show a behaviour pattern similar to that reported in prior research for firms in other countries. Particularly noteworthy is that payback appears to be the most widely used tool, while real options are used relatively little. Our results confirm that size and industry are related to the frequency of use of certain capital budgeting techniques. Further, we find that the relevance of growth opportunities and flexibility is an important factor explaining the use of real options.

Keywords: Corporate investment; NPV; IRR; Payback; Real Options; Survey

JEL Classification: G12; G31

Suggested Citation

Andrés, Pablo de and de la Fuente-Herrero, Gabriel and San Martin, Pablo, Capital Budgeting Practices in Spain (August 29, 2014). BRQ Business Research Quarterly (2015) 18, 37-56, Available at SSRN: https://ssrn.com/abstract=2529661

Pablo de Andrés

Universidad Autonoma de Madrid ( email )

Campus de Cantoblanco
C/ Francisco Tomás y Valiente, 5
Madrid, Madrid 28049
Spain
+34 91 497 6527 (Phone)
+34 91 497 3954 (Fax)

HOME PAGE: http://www.uam.es

ECGI

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Gabriel De la Fuente-Herrero (Contact Author)

University of Valladolid - Department of Financial Economics and Accounting ( email )

Avda. Valle Esgueva 6
47011 Valladolid
Spain

Pablo San Martin

Universidad Catolica de la Santisima Concepcion ( email )

Alonso de Ribera 2850
Concepción, Concepción 4070129
Chile

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