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The Capital Budgeting Process, Incentives and Information

Posted: 24 Oct 1995  

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We study the capital allocation process within firms. Observed budgeting processes are explained as a response to decentralized information and incentive problems. It is shown that these imperfections can result in underinvestment when capital productivity is high and overinvestment when it is low. We also investigate how the budgeting process may be expected to vary with firm or division characteristics such as investment opportunities and the technology for information transfer.

JEL Classification: G31

Suggested Citation

Harris, Milton and Raviv, Artur, The Capital Budgeting Process, Incentives and Information. Available at SSRN:

Milton Harris (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
(773) 702-2549 (Phone)
(773) 753-8310 (Fax)


Artur Raviv

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8342 (Phone)
847-491-5719 (Fax)

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