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.
Highlights
Capital investment decisions are crucial for firm performance and future growth
Hypotheses from the Capex Appraisal Model Based on the Capex Appraisal Model, we have proposed 27 mediating relationships empirically tested through the Smart PLS software
We infer that long-term corporate sustainability is an important aspect of the Capex appraisal process
Summary
Capital investment decisions are crucial for firm performance and future growth. Many past studies have acknowledged that firms have limited resources; their development and sustainability depends on how the top management invests in long term projects (Klammer et al, 1984). Many past studies acknowledge that successful firms use capital budgeting techniques to make investments in long term projects that are financially viable and match the company’s vision (Kim, 1981; Gordon & Pinches, 1984; Scott & Petty, 1984; Mukherjee, 1987; Lumby & Jones, 1999; Burns & Walker, 2009). Bodhanwala (2018) suggests that capital investment is necessary for an organization’s sustainable growth It is irrelevant whether a firm uses its own resources or borrowed resources. This study has used managers, firms, and economic attributes as independent variables, and ROA, ROE, and EPS as proxies for measuring firm performance, which is the dependent variable Perhaps this is the first comprehensive study that has examined the complete appraisal process based on Capex Appraisal Model (CAM). The results may inspire researchers from Pakistan and other South Asian countries to use this model in their studies
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