FACTORS IMPACTING THE CHOICES OF CAPITAL BUDGETING TECHNIQUES: EVIDENCE FROM LARGE FIRMS IN PAKISTAN

Abstract

Purpose of the study The main aim of this research is to classify the practicing of capital budgeting, risk assessment and discount rate techniques that are presently using by public-listed firms in Pakistan. Although the study also aims to classifying the relationship exist between the extent of using capital budgeting techniques and financial factors that have been affecting the selection of the different techniques. Research method/sampling The nature of research is explanatory which is based on quantitative data collected through a well-structured questionnaire. The data is collected from 40 respondents among the public- listed firms in KSE 100 Index that have been chosen as sample size from finance department in which including financial institution, insurance sector, automobile sector, food sector and pharmacy sector. The data was analyzed through chi square test and cross tabs with the help of SPSS. Findings of the research The study revealed that majority of the large firms is moving towards the trends of using sophisticated methods in which NPV, IRR, sensitivity analysis, scenario analysis and WACC are the most widely adopted technique in Pakistan. Moreover, it has been also found that there is significant relationship exit among methods and most of the financial factors that has been selected for the study Practical implications of the research Based on the outcome of the study, the large firms need to give attention to apply the concepts and methods of capital budgeting in the more applicable way and try to adopt more advanced techniques like real options, simulation analysis and decision tree analysis.