The Art of Capital Allocation
Outperformers invest more and allocate capital better, so firms should strengthen budgeting, project selection and governance rather than hoarding cash or raising payouts.
Summary
Across 10,000+ listed firms, Stange, Pidun and Roos find capex-to-revenue fell 10% over a decade while payouts and cash holdings each rose over a third -- yet top-third performers by valuation invested about 50% more capex than peers and achieved roughly 55% higher ROA and 65% higher sales growth. Their prescription: budget by portfolio role (development, growth, anchor, harvesting) rather than by project, use investment-specific selection criteria, and govern with independent committees and post-completion audits.
Editor's opinion
The data point is the real value here -- investment-shy firms are leaving growth on the table while believing they're being prudent.
Key concepts
Capital allocation · Strategic budgeting and project selection · Investment governance