Abstract
Purpose The purpose of this paper is to investigate the current capital budgeting practices in Bangladeshi listed companies and provide a normative framework (guidelines) for practitioners. Design/methodology/approach Data were collected with a structured questionnaire survey taking from the chief financial officers (CFOs) of companies listed in the Dhaka Stock Exchange in Bangladesh. Garnered data were then analyzed using descriptive and inferential statistical techniques. Findings The results found that net present value was the most prevalent capital budgeting method, followed closely by internal rate of return and payback period. Similarly, the weighted average cost of capital was found to be the widely used method for calculating cost of capital. Further, results also revealed that CFOs adjust their risk factor using discount rate. Originality/value The findings of this study might help the firms, policymakers and practitioners to take a wise decision while evaluating investment projects. Additionally, this study’s findings enrich the existing body of knowledge in the field of capital budgeting practices by providing more reliable and comprehensive analysis taking samples from a developing economy.
Highlights
The basic objective of financial management is the maximization of the shareholders’ wealth by focusing on three decisions which are capital budgeting decisions, capital structure decision and dividend decision
A sound capital budgeting decision is very critical for a firm because it is aligned with the firm’s primary objective, and it requires a substantial amount of resource and long-term commitment
The results found that they use discounted cash flow (DCF) methods, and Net present value (NPV) was the most popular measure for capital budgeting decision, followed closely by PB, and internal rate of return (IRR) was ranked third, mentioned that accounting rate of return (ARR) was the least important technique according to the respondents
Summary
The basic objective of financial management is the maximization of the shareholders’ wealth by focusing on three decisions which are capital budgeting decisions, capital structure decision and dividend decision. A sound capital budgeting decision is very critical for a firm because it is aligned with the firm’s primary objective (wealth maximization), and it requires a substantial amount of resource and long-term commitment. Capital budgeting is a major terrain of the sphere of. The full terms of this licence maybe seen at http://creativecommons.org/licences/by/4.0/legalcode
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