Capital budgeting in Europe. Confronting Theory with Practice

Capital Budgeting is an important areas of financial management. It is the process used to determine whether a firm’s long term investments are worth the funding of cash through the firm’s capitalization structure (Sullivan and Steven, 2005). Different techniques are used: the payback period, the accounting rate of return, the present value and the internal rate of return and the profitability index. This research presents an analysis of capital budgeting in three different countries: Italy, France and Spain. The results revealed that PP, followed by NPV, is the most used method. There is a difference between large and small firms. This research has demonstrated that Capital Budgeting decision-making is a complex process and that it is undervalued by SMEs.The limitations of the paper are the result of its very nature: it is a largely conceptual paper.