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The theory and practice of corporate finance: Evidence from the field (2001)
| Venue: | Journal of Financial Economics |
| Citations: | 677 - 20 self |
BibTeX
@ARTICLE{Graham01thetheory,
author = {John R. Graham and Campbell R. Harvey},
title = {The theory and practice of corporate finance: Evidence from the field},
journal = {Journal of Financial Economics},
year = {2001},
pages = {187--243}
}
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Abstract
We survey 392 CFOs about the cost of capital, capital budgeting, and capital structure. Large firms rely heavily on present value techniques and the capital asset pricing model, while small firms are relatively likely to use the payback criterion. We find that a surprising number of firms use their firm risk rather than project risk in evaluating new investments. Firms are concerned about maintaining financial flexibility and a good credit rating when issuing debt, and earnings per share dilution and recent stock price appreciation when issuing equity. We find some support for the pecking-order and trade-off capital structure hypotheses but little evidence that executives are concerned about asset substitution, asymmetric information, transactions costs, free cash flows, or personal taxes. Key words: capital structure, cost of capital, cost of equity, capital budgeting, discount rates, project valuation, survey. 1 We thank Franklin Allen for his detailed comments on the survey instrument and the overall project. We
Keyphrases
corporate finance capital structure capital budgeting franklin allen survey instrument personal tax firm risk trade-off capital structure hypothesis capital asset pricing model free cash flow large firm recent stock price appreciation small firm asset substitution present value technique discount rate overall project new investment project valuation asymmetric information share dilution transaction cost project risk good credit rating little evidence key word financial flexibility payback criterion surprising number detailed comment
