Bridging Theory - Practice Gap in Corporate Finance

Topics: Corporate finance, Capital budgeting, Investment Pages: 26 (6693 words) Published: March 13, 2013
The QuarterlyReviewof Economics and Finance,Vol. 35, Copyright0 1995 Trustees of the Universityof Illinois All rightsof reproductionin any form reserved. ISSN 003%5797


1, Spring, 1995, pages 7347

Bridging the Theory-Practice Gap in Corporate Finance: A Survey of Chief Financial Officers EMERY A. TRAHAN and LAWRENCE J. GITMAN Northeastern University and San Diego State University

The primary objective of this article is to assess general research opinions, barriers to using sophisticatedfinancial utilization, management decision-making techniques, and the understanding, and research preferaces of practicing financial managers. Data is gathered

through 4 mail survqr of the CFOs of the Fortune 500 largest industrial companies and Forbes 200 best small companies. Overall the respondents appear to have little interest in the current state of academic research in corporatefinance financial &cision methods, suggesting and in utiliringjinanceprofasors

as paid or unpaid internal consultants. They do express a desire to know more about many that existing academic research can be better expractitioners and plained and operationalized. There is also some indication that neu academic research is

desired in some areas. There is a need for more dialogue betweenjnance academics to establish how communications how practitioners provide might effectively learn more about financial academic institutions and finance

with practitionerscan be improved and to assess
decision methods that they in academia professors to become more

deem important. Economic necessity and the increased competitionforresources an incentive fm responsive to the specific research preferaces of practitioners.


recent indictments of business education have come from both the


practitioner and academic communities. The American Assembly of Collegiate Schools of Business (AACSB) (1991) questioned the relevance of the current business curriculum. In a study of financial management education, conducted for the Financial Executives Research Foundation (FERF), Keating and Jablonsky (1990, p. 66) conclude that a broadening of the accepted paradigm of research is required to attract and reward faculty who are qualified to educate the team-oriented financial professional. In another study conducted for FERF, Larsen and Ahlstrand (1991, p. 26) report that senior-level, middle-level, and recently hired financial executives noted a lack of training in the practical application of knowledge obtained as the greatest shortcoming of graduate and undergraduate programs. The executives also noted an absence of training in communication and interpersonal skills. 73



The theory-practice Financial Management financial practitioners

gap in corporate

finance was addressed in a Roundtable, Finance,” held during the 1992 on two conflicts of interest: (1)

“Bridging the Theory-Practice

Gap in Corporate focused

Association Annual Meeting in San Francisco. The panel of and academics

businesses want trained workers for specific jobs, whereas universities want to produce well-rounded conceptual thinkers who can grow in their careers; and (2) business wants truly useful theories for corporate financial management, provide academic researchers with necessary data and financial support. The existence of a theory-practice gap is further supported by Ramirez, Waldman, and Lasser (1991). From survey responses of 154 CFOs and middle managers of Fmtune 500 and privately held corporations, they report that respondents felt that the most important research needs are, in order of priority, (1) regulatory issues, (2) ownership, (3) long-term financing, and (4) operational financing. Comparison of these findings with the current research focus of financial academics suggests a significant gap exists. Although Ramirez et al. (1991) provide broad insights into the research needs...

References: American Assembly of Collegiate Schools of Business. March 7,199l. TheAACSBAcmditation Pmject, Final Report. Fmks. 1991. “The 200 Best Small Companies.” November 11: 268-332. Fortune. 1991. “The 500 Largest U.S. Industrial Corporations.” April 22: 286-336. Keating, P J. and S. E Jablonsky. 1990. Changing Roles of Financial Management: Getting Close to the Business. New York: Financial Executives Research Foundation. Larsen, M. D. and S. S. Ahlstrand. 1991. Educating Financial Executives. New York: Financial Executives Research Foundation. Mobley, M. E and H. Kuniansky. 1992. “Chief Financial Officers’ Views of Academics Versus Practitioners in the Field of Finance.” Financial Practice and Education, (Spring/Summer): 67-71. Pruitt, S. W. and L. J. Gitman. 1987. “Capital Budgeting Forecast Biases: Evidence from the Fortune 500.” Financial Managemat, (Spring): 46-51. Ramirez, G. G., D.A. Waldman and D. J. Lasser. 1991. “Research Needs in Corporate Finance: Perspectives From Financial Managers.” Financial Management, (Summer) : 17-29.
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