Factors Determining the Selection of Capital Budgeting Techniques
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Date
2014-09-24
Authors
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Publisher
UMT, Lahore
Abstract
Purpose: The main purpose of this research study is to determine the factors that play an
important role in the selection of a particular capital budgeting techniques. The study
determines the factors that an investor considers significant in the selection of capital
budgeting techniques.
Methodology/Design/Approach: A primary data based study of 92 firms has been
conducted to find the determinants of capital budgeting techniques selection while
considering financial and non financial factors. The financial factors include company
size, growth rate and capital expenditure, whereas non financial factors include project
life, industry, management demographics, competition in the industry, environmental
uncertainty and risk.
Findings: The study concludes that firm’s decision maker’s considers both financial and
non financial factors (except leverage level and company age) while selecting capital
budgeting technique. Small firms usually rely on a one capital budgeting technique and
therefore, mostly don’t consider the non-financial factors like company age, competition
and demographics.
Research Limitations: The study takes the data of the listed and non-listed companies that
are operating and having their offices in the region of Lahore.
Managerial Implications: The study assist investor’s and decision making authorities of
domestic and international firms to have a better look of taking capital budgeting
decisions. This research also enables a broad and rich overview of capital budgeting
techniques used for investment projects within the Pakistan.
Originality/Value: Most of the operational issues and factors of capital budgeting
methods leading to its long term sustainability and selection are brought under
discussion. First comprehensive study has been conducted on factors determines the
selection of capital budgeting techniques within the Pakistan.