Corporate Finance in Europe Confronting Theory with Practice

44 Pages Posted: 11 Jan 2004

See all articles by Abe de Jong

Abe de Jong

Rotterdam School of Management, Erasmus University

Dirk Brounen

Erasmus University Rotterdam (EUR) - Department of Financial Management; Erasmus Research Institute of Management (ERIM); Tinbergen Institute

Kees C. G. Koedijk

Tilburg University - Department of Finance

Multiple version iconThere are 3 versions of this paper

Date Written: January 16, 2004

Abstract

In this paper we present the results of an international survey among 313 CFOs on capital budgeting, cost of capital, capital structure, and corporate governance. We extend previous results of Graham and Harvey (2001) by broadening their sample internationally, by including corporate governance, and by applying multivariate regression analysis. We document interesting insights on how theoretical concepts are applied by professionals in the U.K., the Netherlands, Germany, and France and compare these results with the U.S. We discover compelling variations between large and small firms across all markets. While large firms frequently use present value techniques and the capital asset pricing model when assessing the financial feasibility of an investment opportunity, CFOs of small firms still rely on the payback criterion. Regarding debt policy we document more subtle disparities across firms and national samples. We also find substantial variation in corporate governance structures, which turn out to be more oriented at shareholder wealth in the Anglo-Saxon countries. Corporate finance practice appears to be influenced mostly by firm size, to a lesser extent by shareholder orientation, while national differences are weak at best.

Keywords: international economics, financial economics, law and economics, corporate governance, cost of capital, capital structure

JEL Classification: M, G3, G31

Suggested Citation

de Jong, Abe and Brounen, Dirk and Koedijk, Kees G., Corporate Finance in Europe Confronting Theory with Practice (January 16, 2004). ERIM Report Series Reference No. ERS-2004-002-F&A. Available at SSRN: https://ssrn.com/abstract=485222

Abe De Jong

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-25
Rotterdam, 3000 DR
Netherlands
+31 10 408 1022 (Phone)

HOME PAGE: http://https://www.rsm.nl/people/abe-de-jong/

Dirk Brounen (Contact Author)

Erasmus University Rotterdam (EUR) - Department of Financial Management ( email )

P.O. Box 1738
Room T09-53
3000 DR Rotterdam
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 1 0408 2371 (Phone)
+31 1 0408 9017 (Fax)

HOME PAGE: http://web.eur.nl/fbk/dep/dep5/faculty/dbrounen

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands
120-551-3535 (Phone)

Kees G. Koedijk

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 4663048 (Phone)
+31 13 4662052 (Fax)

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