Premium
The Capital Budgeting Process: Incentives and Information
Author(s) -
HARRIS MILTON,
RAVIV ARTUR
Publication year - 1996
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1996.tb04065.x
Subject(s) - incentive , capital budgeting , productivity , capital (architecture) , process (computing) , capital allocation line , business , industrial organization , investment (military) , microeconomics , capital investment , capital expenditure , economics , finance , macroeconomics , computer science , history , archaeology , project appraisal , politics , political science , law , operating system
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.