Capital Budgeting Practices: State of the Art

Abstract

The purpose of this review paper is to investigate the current state of the art of capital budgeting practices, across countries, determinants influencing capital budgeting practice; and providing future research agenda. The published studies were identified and retrieved using electronic databases accessible through the author's university library system using search parameter and screened against explicit inclusion and exclusion criteria. Thematic analysis was applied to analyze them. Results reveal that project identification, cash-flow estimation and post-audit stage still remains relatively less explored and requires focused in-depth survey investigation. Increased use of DCF techniques (mainly IRR and NPV) along with PB is found in both developed and developing countries for evaluating capital investment projects. Application of real option has gained popularity in last two decades. Risk analysis has become more sophisticated in recent time and increased use of sensitivity and scenario analysis was found for risk assessment. Determinants influencing capital budgeting practices explained the “WHY” of capital budgeting practices. Present work updates the literature, fills the gap in literature by increasing scope and coverage of articles and provide basis for further research.