An Empirical Insight into the Theory and Practices of Capital Budgeting in Pakistan

Abstract

The study explores the different stages of the capital investment decision process and empirically investigates these stages’ mediating role. We have used firms, managers, and economic attributes as independent variables. Likewise, ROA, ROE, and EPS are used as proxies for measuring firm performance, which is the dependent variable. A survey was conducted through a self-developed questionnaire for non-financial listed firms of the Pakistan Stock Exchange (PSX). The questionnaire comprises of two parts. The first part is related to managers and firm attributes. The second part covers the nine steps of the Capex Appraisal Model (CAM). PLS-SEM was used to investigate the objectives of the study. Moreover, the results support the applicability of CAM in the corporate sector of Pakistan. For this purpose, 27 hypotheses were empirically tested, of which 21 were found to be significant. However, 6 hypotheses were not supported. The findings suggest that the “Capex Appraisal Model” is a useful approach for the corporate sector of Pakistan. Thus, firms should properly evaluate Capex decisions to enhance performance in the long run.

Theory and Practice of the Post-Audit of Capital Projects

“…It contains a series of steps, with the original project proposal, investment appraisal, selection (investment decision), implementation, completion, and finally, the post-audit (Lefley, 2016). Baig et al, (2020) state that there are four stages before the project selection: idea generation, strategic planning, analysis, and risk evaluation, with the end critical post-audit stage. This last, post-audit stage is often ignored by organisations and is also less discussed in the literature (Lefley, 2019;Morgan & Tang, 1993).…”