The Theory and Practice of CorporateFinance: Evidence from the Field

Paper: SSRN 220251

Abstract

We survey 392 CFOs about the cost of capital, capital budgeting, and capital structure. Large firms rely heavily on net present value techniques and the capital

Complexity vs Empirical Score

• Math Complexity: 3.0/10
• Empirical Rigor: 7.5/10
• Quadrant: Street Traders — practical and empirical, lighter on theory

Why this score: The paper is a large-scale survey of CFOs with detailed statistical analysis of firm characteristics (size, leverage, etc.), showing strong empirical rigor, but relies on descriptive statistics and regressions without complex mathematical derivations or advanced modeling.

Research Flowchart

  flowchart TD
  Start["Research Goal: <br>How do firms make capital structure & budgeting decisions?"] --> Methodology["Methodology: <br>Survey of 392 CFOs"]
  Methodology --> Inputs["Data/Inputs: <br>Firm characteristics & financial policies"]
  Inputs --> Process["Computational Process: <br>Analysis of NPV usage & cost of capital calculations"]
  Process --> Outcomes["Key Findings: <br>1. Large firms rely heavily on NPV<br>2. WACC is primary hurdle rate<br>3. Capital structure targets exist but rarely enforced"]