Capital Budgeting Practices in Corporate Canada

Financial Practice and Education, Fall/Winter 1995

Posted: 27 Jun 1998

See all articles by Vijay M. Jog

Vijay M. Jog

Carleton University - Eric Sprott School of Business

Ashwani K. Srivastava

Carleton University, Faculty of Social Sciences

Abstract

This study provides direct empirical evidence on the capital budgeting process including estimation of the cost of capital based on a survey of 133 large Canadian companies. Our results indicate that the use of DCF methods has become a norm. Our respondents report high use of subjectivity and judgment in the estimation of inputs into the capital budgeting process, reflecting its strategic nature. Subjective management estimates are used as much to generate cash flow forecasts as the more sophisticated quantitative methods. Similarly, although WACC seems to be the preferred discount rate, determination of the cost of equity is mainly judgmental.

JEL Classification: G15

Suggested Citation

Jog, Vijay M. and Srivastava, Ashwani K., Capital Budgeting Practices in Corporate Canada. Financial Practice and Education, Fall/Winter 1995. Available at SSRN: https://ssrn.com/abstract=7474

Vijay M. Jog

Carleton University - Eric Sprott School of Business ( email )

1125 Colonel By Drive
Ottawa, Ontario K1S SB6
Canada
613-520-2600 (Phone)
613-520-4427 (Fax)

Ashwani K. Srivastava (Contact Author)

Carleton University, Faculty of Social Sciences ( email )

School of Business Dunton Tower, 1125 Colonel By Drive
Ottawa, Ontario K1S 5B6
Canada
613-520-2600, ext. 2514 (Phone)
613-520-4427 (Fax)

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