Capital Budgeting Practices: Evidence from Japan

Abstract

In this paper, we conducted a survey about capital budgeting techniques and the cost of capital for Japanese firms. We find that Japanese firms use payback period method more frequently than NPV and IRR in capital budgeting. Multivariate analyses also show that more financially constrained firms use payback period method more frequently ("Payback Syndrome") and that firm size and experience of M&A have influence on the usage of NPV. International comparisons indicate that capital budgeting practices of Japanese firms are different from US and other countries firms in some respects.

Keywords: Capital budgeting, Cost of equity capital, Survey, Japan

JEL Classification: G31, G32, F23