Capital budgeting practices: evidence from Korea
ISSN: 0307-4358
Article publication date: 26 September 2020
Issue publication date: 28 January 2021
Abstract
Purpose
The authors present the results of a survey on how Korean firms evaluate new projects and estimate their capital costs. The authors report how Korean firms’ capital budgeting practices compare to other developed countries and to best practices in the field of finance.
Design/methodology/approach
The authors survey CFOs of major Korean firms on their capital budgeting practices. The authors then compare the results against the US and European firms and best practices of leading firms and financial advisors.
Findings
The authors find that the capital budgeting practices of Korean firms are as strong as or stronger than firms in developed markets. A majority of Korean firms use best practices techniques such as NPV, IRR and the CAPM for project evaluation and cost of equity estimation. Chaebol affiliation results in somewhat stronger capital budgeting practices. The authors also find that other factors, such as company size, leverage, CEO age and CEO education, impact capital budgeting practices.
Originality/value
This paper is the first article that comprehensively examines Korean firms' capital budgeting practices.
Keywords
Acknowledgements
The authors thank John Graham and Campbell Harvey for their permission to use their survey instrument. The Korea CFO Association generously provided the authors with a mailing list of member CFOs. Seong Hun Kim and Junghum Park provided excellent research assistance. The authors appreciate the CFOs in Korean firms for taking their valuable time to complete the survey.
Citation
Kim, T., Lee, H., Park, K. and Waggle, D. (2021), "Capital budgeting practices: evidence from Korea", Managerial Finance, Vol. 47 No. 2, pp. 189-208. https://doi.org/10.1108/MF-05-2020-0238
Publisher
:Emerald Publishing Limited
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