Industrial Buying And The Divergence Of Capital Budgeting Theory And Practice: An Exploration

Abstract

This exploratory paper suggests that a stage-gate industrial buying model may provide an explanation for the divergence of capital budgeting theory and practice. Not surprisingly, we find that qualitative and quantitative characteristics of projects are perceived to vary in complexity. More importantly, our results indicate that these characteristics vary in importance as they proceed to each subsequent stage, and that the idea of selling projects at each subsequent stage by packaging the projects; emphasizing those aspects deemed important or of appropriate complexity and de-emphasizing others. We relate these results to current theory and practice and suggest further investigation.