Capital Budgeting and Capital Structure Decisions

Subject: Finance
Pages: 1
Words: 290
Reading time:
2 min

The paper “How Do CFOs Make Capital Budgeting and Capital Structure Decisions?” by Graham and Harvey 2002 explored the current activities of corporate finances with specific emphasis on capital budgeting and capital structure areas. The investigators used surveys to conduct their study to recognize corporate finance aspects consistent with the theory of finance and the complex aspects when reconciling the daily activities in finance. Graham and Harvey 2002 solicited answers from around 4,440 businesses and acquired 392 completed inspections, representing an extensive diversity of companies and commerce.

The survey delimited nearly 100 inquiries and discovered both money budgeting and investment structure choices in profundity. The replies to these interrogations enabled the researchers to discover how and whether these corporate strategies are interrelated. The scholars investigated whether firms that added aggressive debt funding usage were also inclined to use supplementary sophisticated capital planning techniques. The survey design permitted a wealthier understanding of company decision-making by examining the CFOs’ replies in the setting of various firm characteristics, including P/E ratio, size, leverage, dividend policy, credit rating, and industry.

The scholars also considered systematic relations between corporate fiscal choices and decision-making features, such as top management’s stock possession extent and CEO tenure, age, and education. By testing if the retorts varied thoroughly with these physiognomies, the examiners shed light on various business finance models that emphasize a company’s size, investment opportunities, risk, and managerial incentives imply. The results of the assessors showed that considering capital budgeting, utmost companies trail academic schemes and use reduced cash movement (DCF) and present disposable worth (NPV) procedures to appraise new missions. Nevertheless, when making capital construction decisions, establishments appear to recompense less courtesy to finance schemes and rely in its place on applied, informal instructions of thumb.


Graham, J., & Harvey, C. (2002). How Do CFOs Make Capital Budgeting and Capital Structure Decisions? Journal of Applied Corporate Finance, 15(1).