One possibility is to view a company's investments in projects like how VCs view their portfolio: few investments will produce positive returns while many won't (the company's management is well aware of this as a "reality").
The higher IRR hurdle is merely reflecting the risks of their own portfolio and not a rational decision on each project/investment initiative per se.
>it is well-established that corporate hurdle rates are usually far above stock or bond returns
>Perhaps the rise of shareholder payouts and corporate “capital discipline” over the last few decades has propped up the required return on capital
What do you think about the following alternative hypothesis?
Corporate managers make per-project "investment decisions" in order to get promoted. On an individual level, they borrow political capital, and have personal "returns" within the corporate hierarchy.
So while a company can borrow at 3%, any individual project manager working for the company "borrows" political capital at say 15% "individual rate" -- their interests are not exactly aligned with the company (the company would prefer the manager to take on a risky project against manager's best interest).
One possibility is to view a company's investments in projects like how VCs view their portfolio: few investments will produce positive returns while many won't (the company's management is well aware of this as a "reality").
The higher IRR hurdle is merely reflecting the risks of their own portfolio and not a rational decision on each project/investment initiative per se.
>it is well-established that corporate hurdle rates are usually far above stock or bond returns
>Perhaps the rise of shareholder payouts and corporate “capital discipline” over the last few decades has propped up the required return on capital
What do you think about the following alternative hypothesis?
Corporate managers make per-project "investment decisions" in order to get promoted. On an individual level, they borrow political capital, and have personal "returns" within the corporate hierarchy.
So while a company can borrow at 3%, any individual project manager working for the company "borrows" political capital at say 15% "individual rate" -- their interests are not exactly aligned with the company (the company would prefer the manager to take on a risky project against manager's best interest).