Claus Højmark Jensen’s lecture took place online via Zoom March 28, 2022. Members of the assessment committee were:
- Professor Per Nikolaj Bukh, Aalborg University Business School, DK (chair)
- Professor, Joan Ballantine, Ulster University, UK
- Associate Professor, Ivar Friis, Copenhagen Business School, DK
Summary of the thesis
Capital budgeting refers to decision-making related to a firm’s long-term investments, which represent important organizational processes as uneconomical allocation of scarce resources stands the chance of destroying value (Arnold and Hatzopoulos, 2000; Jensen and Kristensen, 2021). Effective economic management is a critical factor in achieving long-term success and survival. Therefore, allocation or distribution of firm resources to capital investments is one of the top strategic priorities for top management (Bowman and Hurry, 1993a; McGrath et al., 2004; Bennouna et al., 2010; Jensen and Kristensen, 2021). For a long time, academics have promoted the use of theory consistent appraisal techniques such as net present value, and while the adoption of such techniques has been confirmed, capital budgeting has many facets, and any one technique provides no role for the policies and processes that appear to be critical for an organization’s investment outcomes (Haka, 2006). Capital budgeting also includes various processes and procedures aimed at managing a firm’s capital investment projects. This dissertation contributes with insights on capital budgeting processes related to investment reviews, also termed post-decision controls, and real options reasoning (ROR).
One of the scarcely researched processes of capital budgeting are those processes that occur after the investment selection decision. The academic literature in this area has documented various types of such post-decision controls. Relatedly, extant literature is ambiguous about whether different investment types require different control mechanisms. This dissertation takes a closer look at these processes and contributes with a survey study, which examines how capital budgeting post-decision controls may help or hinder translating investments in exploration and exploitation into performance. The results further our understanding of how management controls can contribute to managing innovation investments by showing a positive relation to performance when formal post-decision control is used in connection with exploration investments, and when informal post-decision control is used in connection with exploitation investments.
In innovative firms where environmental uncertainty is a key driver of expected future returns, the design of effective organizational control forms to support decision-making under uncertainty may be particularly challenging. A scarcely researched area within ROR relates to how firms implement ROR. This dissertation contributes with the development of a multidimensional survey construct measuring three individual dimensions of ROR. The results indicate that environmental uncertainty is an important contingency to consider when studying ROR. The findings show that the conditional correlations between the ROR constructs are only significant in a context of high environmental uncertainty, meaning that in such context firms prefer a joint implementation of ROR. Further, one of the main benefits of ROR is the theorized relation to lower levels of downside risk. Empirical research in this area has largely been limited to studies of multinational corporations (MNC). This dissertation contributes with results showing that the relationship between ROR and lower levels of downside risk extends beyond the context of MNCs.