The theory and practice of corporate finance : evidence from the field

John R. Graham
, Campbell R. Harvey

Abstract
We survey 392 CFOs about the cost of capital, capital budgeting, and capital structure.  Large "rms rely heavily on present value techniques and the capital asset pricing model, while small "rms are relatively likely to use the payback criterion. A surprising number of firms use firm risk rather than project risk in evaluating new investments.

Firms are concerned about financial flexibility and credit ratings when issuing debt, and earnings per share dilution and recent stock price appreciation when issuing equity. We find some support for the pecking-order and trade-off capital structure hypotheses but little evidence that executives are concerned about asset substitution, asymmetric information, transactions costs, free cash flows, or personal taxes.