Investment Evaluation Methods and Required Rate of Return in Finnish Publicly Listed Companies

Finnish Journal of Business Economics, Vol. 53, No. 1

24 Pages Posted: 13 May 2004

See all articles by Eva Liljeblom

Eva Liljeblom

Swedish School of Economics and Business Administration

Mika Vaihekoski

University of Turku, Turku School of Economics; University of Turku - Turku School of Economics

Abstract

Financial literature and professors advocate the use of the Net Present Value method for the evaluation of investments. Its key parameter is the required rate of return on equity, which is to be calculated using the Capital Asset Pricing Model or a similar model especially if the company is publicly listed. However, there is ample evidence on companies not necessarily utilizing the NPV method or the CAPM in their capital budgeting and investment evaluation processes. This paper presents results of a survey conducted among the companies listed on the Helsinki Stock Exchange. The results show that the Finnish companies still lag behind US and Swedish companies in their use of the NPV, and the IRR method, even though it has become more commonly used during the last ten years. CAPM is used in surprisingly few companies, and 27 percent of the companies have not even defined their required rate of return on equity.

Keywords: Investment, payback rule, IRR, NPV, WACC, CAPM, HEX

JEL Classification: G31

Suggested Citation

Liljeblom, Eva and Vaihekoski, Mika and Vaihekoski, Mika, Investment Evaluation Methods and Required Rate of Return in Finnish Publicly Listed Companies. Finnish Journal of Business Economics, Vol. 53, No. 1, Available at SSRN: https://ssrn.com/abstract=486462

Eva Liljeblom

Swedish School of Economics and Business Administration ( email )

P.O. Box 479
FI-00101 Helsinki, 00101
Finland
+358-9-431 33 291 (Phone)
+358-9-431 33 393 (Fax)

Mika Vaihekoski (Contact Author)

University of Turku - Turku School of Economics ( email )

Turku, 20014
Finland

HOME PAGE: http://users.utu.fi/moovai/

University of Turku, Turku School of Economics ( email )

Turku School of Economics
Dep. of Accounting and Finance
University of Turku, 20014
Finland
+358 2 33351 (Phone)

HOME PAGE: http://users.utu.fi/moovai/

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
1,707
Abstract Views
8,364
Rank
19,112
PlumX Metrics