Investment Decisions on Long-Term Assets: Integrating Strategic and Financial Perspectives
Universidade de São Paulo
Diógenes De Souza Bido
Mackenzie Presbyterian University
Ana Paula Capuano da Cruz
Universidade Federal do Rio Grande
Marcelo Francini Girão Barroso
FEA/University of Sao Paulo, Brazil
Maria José de Camargo Machado
University of Sao Paulo (USP)
September 1, 2010
Fábio Frezatti , Diógenes de Souza Bido , Ana Paula Capuano da Cruz , Marcelo Francini Girão Barroso & Maria José de Camargo Machado (2013): Investment Decisions on Long-term Assets: Integrating Strategic and Financial Perspectives, European Accounting Review, 22(2), p. 297-336.
This paper aims to verify how companies formalise the decisions and control on long-term investments. In particular, an analysis of the published literature reveals a relevant gap between the strategic and financial perspectives in addressing this issue, and Agency Theory was proposed as a linking construct to bridge this gap. A survey was conducted among 82 companies, and the data were treated using the structural equation modelling technique. The results of this survey indicate that firms with intensive external funding use sophisticated capital budgeting methods more frequently when evaluating the profitability of their long-term investment proposals. As these methods require detailed information, these firms use additional appraisal mechanisms to conduct their investment analysis more frequently. Additional mechanisms are also used if the long-term investment is funded by external sources and perceived as a riskier investment. These deeply analysed long-term investment proposals often appear and are decided as a part of the strategic planning process instead of being strongly associated with the budgeting process. Finally, these long-term investments, which are funded by external funding, analysed using sophisticated methods and mechanisms and decided as a part of the strategic planning cycle, are more tightly controlled than other investments. These findings help to reduce the heuristics within the related literature.
Keywords: investment decisions, long-term assets, capital budgeting, agency theory, strategic planning, capital budgetAccepted Paper Series
Date posted: July 24, 2012 ; Last revised: May 18, 2013
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