The Association Between the Use of Sophisticated Capital Budgeting Practices and Corporate Performance

Farragher, Edward J.; Kleiman, Robert T.; Sahu, Anandi P.

doi:10.1080/00137910108967579

Cited by 33 publications

(40 citation statements)

References 6 publications

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“…NPV and IRR are treated as advanced investment appraisal techniques in the literature (Verbeeten,2006). Advanced investment appraisal techniques lead to higher level of performance (Farragher, Kleiman & Sahu, 2001). Therefore the findings of the study are consistent with the literature.…”

Section: Regression Analysissupporting

confidence: 81%

“…Several studies (Klammer, 1973;Kim, 1981;Pike, 1984;Farragher, Kleiman & Sahu, 2001) have noted that analyzing the relationship between capital budgeting sophistication and firm's performance and the use of accounting information when constructing performance measures is widespread. Munyao (2010) suggested that sophisticated capital budgeting procedures can under the assumption of economic rationality be regarded as a means a firm uses in order to fulfill its objective of shareholders wealth maximization.…”

Section: Empirical Reviewmentioning

confidence: 99%

“…The results of Farragher et al's study (2001) are consistent with the results of Ramadan's study (1991). Farragher et al (2001) studied the relationship between the use of sophisticated capital budgeting practices and corporate performance. The researchers developed a multiple regression model that explains the performance through some variables including the degree of capital budgeting sophistication.…”

Section: Empirical Reviewmentioning

confidence: 99%

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Use of Capital Investment Appraisal Practices and Effectiveness of Investment Decisions: A Study on Listed Manufacturing Companies in Sri Lanka

Kengatharan

Clamenthu

2017

AJFA

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Primary objective of the present study was to examine the relationship between use of capital investment appraisal practices and effectiveness of investment decision of listed manufacturing companies in Sri Lanka. Capital investment appraisal practices were measured by capital investment appraisal techniques and risk analysis techniques of investment projects. Effectiveness of investment was measured by perceptions of CFOs on the performance from investment. Firm size was used as the control variable to examine the relationship between investment appraisal practices and effectiveness of investment decision. The study employed a field survey from January to March 2017 and primary data was collected through self-administered questionnaires from randomly selected 20 listed manufacturing companies. Results of the study revealed that use of NPV and IRR have significantly positively related to effectiveness of investment decision while DPB has significantly negatively related to effectiveness of investment decision of listed manufacturing companies in Sri Lanka. Risk analysis techniques were not significantly related to effectiveness of investment decision. Findings of the study may useful to the investment decision makers in order to achieve the shareholders wealth.

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Section: Regression Analysissupporting

confidence: 81%

Section: Empirical Reviewmentioning

confidence: 99%

Section: Empirical Reviewmentioning

confidence: 99%

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Use of Capital Investment Appraisal Practices and Effectiveness of Investment Decisions: A Study on Listed Manufacturing Companies in Sri Lanka

Kengatharan

Clamenthu

2017

AJFA

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“…CBS are formal techniques that are used throughout the entirety of decision-making steps in evaluating project investments (Farragher et al 2001). These may be classified as either naïve (e.g.…”

Section: Introductionmentioning

confidence: 99%

Does National Culture Impact Capital Budgeting Systems?

Graham

Sathye

2017

AABFJ

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We examine how national culture impacts organisational selection of capital budgeting systems to develop our understanding of what influence a holistic formulation of national culture has on capital budgeting systems. Such an understanding is important as it would not only provide a clearer link between national culture and capital budgeting systems and advance extant literature but would also help multinational firms that have business relationships with Indonesian firms in suitably designing strategies. We conducted semi-structured interviews of selected finance managers of listed firms in Indonesia and Australia. Consistent with the contingency theory, we found that economic, political, legal and social uncertainty impact on the use of capital budgeting systems. The levels of uncertainty were higher in Indonesia than Australia and need to be reckoned in the selection of capital budgeting systems used by firms. We also found that firms are influenced by project size and complexity, when selecting capital budgeting systems. KeywordsCapital budgeting systems, National culture, Indonesia, Australia. AbstractWe examine how national culture impacts organisational selection of capital budgeting systems to develop our understanding of what influence a holistic formulation of national culture has on capital budgeting systems. Such an understanding is important as it would not only provide a clearer link between national culture and capital budgeting systems and advance extant literature but would also help multinational firms that have business relationships with Indonesian firms in suitably designing strategies. We conducted semi-structured interviews of selected finance managers of listed firms in Indonesia and Australia. Consistent with the contingency theory, we found that economic, political, legal and social uncertainty impact on the use of capital budgeting systems. The levels of uncertainty were higher in Indonesia than Australia and need to be reckoned in the selection of capital budgeting systems used by firms. We also found that firms are influenced by project size and complexity, when selecting capital budgeting systems. JEL Classification: M40

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“…Therefore, change in use of capital budgeting methods is challenging but also vital for competition with other organisations. There is a strong believe in finance literature that effective investment decision making leads to ISSN 2162-3082 2017 higher performance to the respective companies (e.g., Kim, 1981;Haka, Gordon and Pinches, 1985;Ho, 1992;Chen, 1995;Dardanne, 1998, Farragher, Kleiman andSahu, 2001;Gomes, Yasin and Lisboa, 2011;Jiang, Chen and Huang, 2006). But specifically political, policy and social uncertainties are the dominant aspects which change the use of capital budgeting practices.…”

Section: Practical Relevance Of the Studymentioning

confidence: 99%

Moderating Effect of Social Uncertainty between Capital Budgeting Practices and Performance

Kengatharan

2017

ijafr

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Capital budgeting is crucial in order for companies to sustain themselves, survive and flourish in markets and to increase shareholders" wealth. The performance of a firm depends on its effective investment decisions. Investing in the 'right' project has an influence on the success of the firm and its future growth. Even though risk and uncertainty factors carefully considered in investment decision making. Therefore, aim of this study was to evaluate the moderating effect of uncertainty between capital budgeting practices and performance based on Sri Lankan emerging market. The data were garnered from primary data and secondary data sources. The primary data were collected from 186 CFOs working in companies in Sri Lanka using self-administered questionnaires. The questionnaire was piloted with a sample of five CFOs. The secondary data were mainly collected from CSE via the Bloomberg website/annual reports for the 5 years period. In order to evaluate the moderating effect of uncertainty between capital budgeting practices and performance, social uncertainty has been considered in this study. Performance was measured by Tobin_q. Data were analysed using descriptive, inferential and multivariate analysis. Findings of the study revealed that an increased level of social uncertainty weakens the positive relationship between sophisticated capital budgeting practices and Tobin_q. In a similar way, an increased level of social uncertainty weakens the positive relationship between advanced capital budgeting practices and Tobin_q and vice versa. Overall, this study has made contribution as identified the moderating effect of uncertainty between the relationship of capital budgeting practices and performances. In a nutshell, beyond its valuable contribution, this study serves as a springboard for future research in many ways.

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The Association Between the Use of Sophisticated Capital Budgeting Practices and Corporate Performance

Cited by 33 publications

References 6 publications

Use of Capital Investment Appraisal Practices and Effectiveness of Investment Decisions: A Study on Listed Manufacturing Companies in Sri Lanka

Use of Capital Investment Appraisal Practices and Effectiveness of Investment Decisions: A Study on Listed Manufacturing Companies in Sri Lanka

Does National Culture Impact Capital Budgeting Systems?

Moderating Effect of Social Uncertainty between Capital Budgeting Practices and Performance

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