Capital budgeting practices: A comparative study of the Netherlands and China

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...

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Bibliographic Details
Published in:International business review 2007-10, Vol.16 (5), p.630-654
Main Authors: Hermes, Niels, Smid, Peter, Yao, Lu
Format: Article
Language:English
Subjects:
Budgeting
Business practices
Capital budgeting
Capital budgeting Cost of capital Survey The Netherlands China
Capital costs
China
Comparative analysis
Cost of capital
Economic development
Estimation
Firm budgets
Netherlands
Survey
The Netherlands
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Summary: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 Chief Financial Officers (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.
ISSN:0969-5931
1873-6149
DOI:10.1016/j.ibusrev.2007.05.002