Corporate finance in Europe: Confronting theory with practice

We present the results of an international survey of 313 European CFOs on capital budgeting, cost of capital, capital structure, and corporate governance. We find that although large firms often use present value techniques and the capital asset pricing model to assess the feasibility of an investment opportunity, CFOs of small firms still rely on the payback criterion. In capital structure policy, financial flexibility appears to be the most important factor in determining the amount of corporate debt. Corporate finance practice appears to be influenced mostly by firm size, to a lesser extent by shareholder orientation, and least by national influences.