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Four Papers on Top Management's Capital Budgeting and Accounting Choices in Practice
Uppsala University, Disciplinary Domain of Humanities and Social Sciences, Faculty of Social Sciences, Department of Business Studies.
2012 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This thesis contributes to an understanding of capital budgeting and accounting practice. The factors affecting practice are of special research interest. It is also investigated whether practice diverges from what is prescribed by finance text books and accounting standards/frameworks. The overarching research question posed in this thesis is: “What capital budgeting and accounting choices are made by top management in practice, and how can these choices be explained?”. The thesis consists of four papers that address this issue.

The first two papers focused on capital budgeting choices. Findings emphasised that the use of sophisticated capital budgeting and cost of capital estimation methods such as NPV and CAPM was widespread in Swedish listed companies. However, also unsophisticated accounting based methods were employed. Overall, findings suggested that Swedish companies used capital budgeting and cost of capital estimation techniques less often than did U.S./continental European companies. Other interesting findings were changes over time. Over time, the use of sophisticated methods increased and the use of unsophisticated methods decreased. This indicated a closing of the theory-practice gap. Finally, size was generally positively related to more extensive use of methods.

The last two papers focused on accounting choices. Findings showed that non-preparers supported amortisation of goodwill to a greater extent than did preparers. Preparers instead supported the goodwill impairment-only approach. It was suggested that economic consequences could explain why preparers supported the goodwill impairment-only approach. When the impairment-only approach subsequently was introduced by the International Accounting Standards Board (IASB), Swedish and Dutch preparers however only disclosed slightly more than 60% of the assumptions underlying the impairment test, after three years of learning. Moreover, findings showed that the level of compliance with the IASB’s disclosure requirements was associated with industry; financials were less compliant than were non-financials. Findings also showed that Swedish and Dutch companies were more compliant in 2008 than they were in 2005, which suggested learning over time. Finally, in 2005 the disclosure compliance level was higher in Sweden than in the Netherlands. Three years later, 2008, the difference was eliminated, thus indicating convergence.

Place, publisher, year, edition, pages
Uppsala: Företagsekonomiska institutionen , 2012. , 43 p.
Doctoral thesis / Företagsekonomiska institutionen, Uppsala universitet, ISSN 1103-8454 ; 153
Keyword [en]
Capital budgeting method, cost of capital estimation, accounting choice, goodwill, disclosure compliance
National Category
Social Sciences
Research subject
Business Studies
URN: urn:nbn:se:uu:diva-180072OAI: diva2:547888
Public defence
2012-10-03, Hörsal 2, Kyrkogårdsgatan 10, 753 13 UPPSALA, Uppsala, 13:15 (Swedish)
Available from: 2012-09-12 Created: 2012-08-29 Last updated: 2012-09-12Bibliographically approved

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