Capital Budgeting Practices: A Comparative Study of the Netherlands and China

41 Pages Posted: 26 Feb 2006

See all articles by Niels Hermes

Niels Hermes

University of Groningen - Faculty of Economics and Business

Peter P.M. Smid

University of Groningen - Faculty of Economics and Business

Lu Yao

affiliation not provided to SSRN

Date Written: November 2005

Abstract

This paper compares the use of capital budgeting techniques of Dutch and Chinese firms, using data obtained from a survey among 250 Dutch and 300 Chinese companies. Our main aim is to analyse the use of capital budgeting techniques by companies in both countries from a comparative perspective to see whether economic development matters. The empirical analysis provides evidence that Dutch CFOs on average use more sophisticated capital budgeting techniques than Chinese CFOs do. At the same, however, our results suggest that the difference between Dutch and Chinese firms is smaller than might have been expected based upon the differences in the level of economic development between both countries, at least with respect to the use of methods of estimating the cost of capital and the use of CAPM as the method of estimating the cost of equity.

Keywords: Capital budgeting, cost of capital, survey, The Netherlands, China

JEL Classification: G31, G32, F23

Suggested Citation

Hermes, Niels and Smid, Peter P.M. and Yao, Lu, Capital Budgeting Practices: A Comparative Study of the Netherlands and China (November 2005). Available at SSRN: https://ssrn.com/abstract=881754 or http://dx.doi.org/10.2139/ssrn.881754

Niels Hermes (Contact Author)

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

Peter P.M. Smid

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

Lu Yao

affiliation not provided to SSRN

No Address Available