The effectiveness of sophisticated capital budgeting practices: Empirical evidence from the Netherlands

This study examines the effectiveness of sophisticated capital budgeting practices. The theoretical applications of sophisticated capital budgeting practices (defined as the use of real option reasoning and/or game theory decision rules) have been well documented; however, empirical evidence on the effectiveness of these sophisticated capital budgeting practices is scarce. The empirical results from a survey of Dutch organizations suggest that the use of sophisticated capital budgeting practices is not necessarily associated with higher performance. However, the results also indicate that particular industries may benefit from sophisticated capital budgeting practices. Additional research may identify the specific characteristics that affect the effectiveness of sophisticated capital budgeting practices for individual companies.