The capital budgeting process: Incentives and information

Milton Harris, Artur Raviv

Research output: Contribution to journalArticlepeer-review

190 Scopus citations


We study the capital allocation process within firms. Observed budgeting processes are explained as a response to decentralized information and incentive problems. It is shown that these imperfections can result in underinvestment when capital productivity is high and overinvestment when it is low. We also investigate how the budgeting process may be expected to vary with firm or division characteristics such as investment opportunities and the technology for information transfer.

Original languageEnglish (US)
Pages (from-to)1139-1174
Number of pages36
JournalJournal of Finance
Issue number4
StatePublished - Sep 1996

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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