Abstract
This paper assesses business investment appraisal techniques and expectations formation. The paper begins with a comparative analysis of the links between fixed asset investment theories and real world investment appraisal techniques, focusing on the underlying assumptions about rationality and expectations. In the empirical sections, these ideas are tested via an analysis of business behaviour based upon survey evidence from a sample of Cambridgeshire manufacturing firms. The statistical analysis focuses on hypothesis testing, ordered probit estimations and simulations. The evidence presented reveals that whilst conventional production function analysis does provide some explanatory power in describing the objective determinants of firm investment activity, subjective and behavioural factors are also important.
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The author is grateful to Geoff Harcourt, Philip Arestis and an anonymous referee for their encouraging advice and suggestions.
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Baddeley, M.C. Behind the black box: a survey of real-world investment appraisal approaches. Empirica 33, 329–350 (2006). https://doi.org/10.1007/s10663-006-9020-1
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DOI: https://doi.org/10.1007/s10663-006-9020-1