Are New Zealand Chief Financial Officers the Poor Cousins of Their American Counterparts?

Abstract

The financial management tools and techniques used by financial officers to make investment decisions have emanated from North America. However, due to differences in business environment some of the techniques may not be suitable in New Zealand (NZ) without modification. The purpose of this research is twofold. First, we wish to determine whether NZ CFOs use similar financial management practices for project evaluation and cost of capital determination, as their North American counterparts. Secondly, we seek to identify whether sound reasons exist for any potential or apparent differences in NZ and US financial management practices.

From a survey based upon a questionnaire developed by Graham and Harvey (2001) the responses of 26 NZ CFOs were analysed and compared to their American counterparts in similar-sized firms. The results show that in NZ, financial managers have adopted most of the financial management techniques that are currently used in the US. The variations in the use of these techniques are explainable by differences in firm size and the domestic environment. It is recommended that NZ CFOs consider the appropriateness of overseas financial practices before applying them.

Keywords: Capital budgeting; Project evaluation; Risk; Cost of capital

JEL Classification: G31, G32