The theory-practice gap in capital budgeting: Evidence from the United Kingdom

Glen C. Arnold, Panos D. Hatzopoulos

Research output: Contribution to journalArticlepeer-review


We report the results of a survey of capital budgeting techniques used by United Kingdom firms. Where possible, the evidence is combined with data collected over a 22 year period to provide a basis for the discussion of causes of trends. We observe that there has been a substantial narrowing of the theory-practice gap in the use of project appraisal methods. The gap has also narrowed in other areas: the analysis of risk, inflation adjustment, capital budget preparation, WACC calculation and post-auditing. However, there are other elements of capital budgeting theory, e.g. probability and beta analysis which have been adopted by very few practising managers. We also discuss non-economic projects, capital rationing and hurdle rates.
Original languageEnglish
Pages (from-to)603-626
Number of pages24
JournalJournal of Business Fnance and Accounting
Issue number5-6
Publication statusPublished - 1 Jun 2000


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