An exploratory study of capital budgeting practices in the United Arab Emirates

Abstract

This study examines the capital budgeting process of a cross-sectional sample of companies in the United Arab Emirates (UAE). The study addresses two research questions. The first question deals with the extent to which modern capital budgeting techniques are practiced in UAE companies. The second question deals with the extent to which company size affects capital budgeting practices in UAE. The study also benchmarks the results obtained to those of recent surveys of United Kingdom (UK) companies. The study adopted a structured survey approach similar to that of Arnold and Hatzopoulos (2000) to collect information on companies' investment processes and decision criteria. The results indicate that the majority of the surveyed UAE companies follow the general trend of adopting discounted cash flows and formal risk analyses when making capital investment decisions. The results also indicate that the size of a company is not a significant determining factor for the sources of capital investment ideas. However, company size makes significant differences in terms of formalised procedures (e.g., budget committees, use of normalised processes, and use of post-project implementation audits) and selection of evaluation techniques.