Making Capital Budgeting and Capital Structure Decisions Essay

9929 Words Oct 14th, 2008 40 Pages
Prepared for The Journal of Applied Corporate Finance Vol. 15, No. 1, 2002
How do CFOs make capital budgeting and capital structure decisions?1
John R. Graham
Associate Professor of Finance, Fuqua School of Business, Duke University, Durham, NC 27708 USA
Campbell R. Harvey
Professor of Finance, Fuqua School of Business, Duke University, Durham, NC 27708 USA
National Bureau of Economic Research, Cambridge, MA 02912 USA
March 8, 2002
1A longer and more detailed version of this paper is published as “The Theory and Practice of Corporate
Finance: Evidence from the Field” in the Journal of Financial Economics Vol. 60, 2001, pp. 187-243.
This research is partially sponsored by the Financial Executives International (FEI) but the
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For example, large firms are significantly more likely to use net present value techniques, while small firms are more likely to use the payback criterion. A majority of large firms have a tight or somewhat tight target debt ratio, in contrast to only one-third of small firms. The paper is organized as follows. In the next section, we present the survey design and sampling methodology. In the third section we study capital budgeting. We analyze capital structure decisions in the fourth section. We offer some concluding remarks in the final section.
How do CFOs make capital budgeting and capital structure decisions? 3
SURVEY METHODOLOGY
Perhaps the most important aspect to survey research is designing a survey instrument that asks clear and pertinent questions. We took numerous steps in our attempt to achieve this end.
We started by developing, over a periods of several months, a draft survey. We circulated this draft to a group of academics and practitioners for feedback. We incorporated their suggestions and revised the survey. We then sought the advice of marketing research experts on the survey design and execution. We made changes to the

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