Abstract

This article examines the impact of the cost of capital on managerial decision making. Senior executives from four capital-intensive industries were interviewed. One group of executives (Group I ) argued that the cost of capital has a major impact on their ability to compete and directly constrains their investments in capital equipment and/or R&D. A second group (Group 2) expressed a roughly opposite view, arguing that the cost of capital is not one of the primary factors in their decision making. Two factors appear to account for this difference: Group 2 firms tend to be in better financial condition than Group 1, and Group 2 firms are technology leaders in their respective markets, whereas Group I firms are not.