Capital Budgeting Practice of Thai Firms

Kereboon Champathed

doi:10.22610/imbr.v7i1.1139

Abstract

This paper examines the capital budgeting practice of Thai firms and the relationships between capital budgeting techniques and the firm size, length of operation and type of firms. The results indicated that most Thai firms used capital budgeting techniques for the analysis of investment projects (74.1%) and more than half (51.7%) of total corporate capital investment expenditures were screened by capital budgeting techniques. Discounted-cash-flow techniques were used by the majority of the firms with Internal Rate of Return (IRR) the most used evaluate techniques. Moreover, risk is quantified on individual project basis in assessing risk in investment decisions. Shortening the desired payback period was used most among the risk analysis techniques and the most likely scenario received most attention in the financial justification in relation to risk.

Highlights

Most firms have sophisticated evaluation techniques for investment projects involving capital budgeting for uses as important tools for financial managers
The firm used capital budgeting techniques: The questionnaire collects information on how capital budgeting techniques are used in practice to evaluate project consist of type of investment project, percentage of total corporate capital investment expenditures, the methods that the company uses in evaluating investment projects, assessing risk in investment decision, using risk analysis techniques and cash-flow scenario that received most attention in the financial justification
Discussion of Results: The results of the capital budgeting techniques used by Thai firms were elaborated and compared to past studies which showed that most Thai firms use capital budgeting techniques for the analysis investment projects at 74.1% (Table 1)

Summary

Introduction

Most firms have sophisticated evaluation techniques for investment projects involving capital budgeting for uses as important tools for financial managers. Capital budgeting decision process remains one of the key contemporary management problems. The results help mold the firm's future opportunities. The financial managers have to weigh the pros and cons carefully before any capital investment decision making. Capital budgeting contains procedures to evaluate, compare and select projects. Capital budgeting aims to choose investment projects with satisfactory cash flows and rates of return. Capital budgeting techniques helped financial decision-making in the past (Ryan & Ryan 2002; Schall et al, 1978). Researches had examined the circumstances in which the use of Discounted Cash Flow (DCF) methods or may not be beneficial

Objectives

Methods

Results

Discussion

Conclusion