Capital Investment Decision Making and Risk Management Methods: Evidence From Listed Companies on Pakistan Stock Exchange

Abstract

Capital Investment projects are evaluated and appraised by the corporate managers of business firms listed on PSX through different pragmatic methods, tools and techniques. The complexity of the application of all the methods simultaneously including traditional financial methods, strategic pragmatic methods and risk management methods, urge the corporate managers to apply at least one of the pragmatic methods so that projects’ capital investment decision making criterion or criteria may be reached at to measure the appropriate capital investment decision making. Keeping all this in view, this paper aims to study the risk management techniques rather than studying and measuring all the traditional methods. This paper examines the effect of financial and non-financial factors on risk management methods which are supported by different theories and empirical background with proper references and citations. The responses of the corporate managers of 250 listed business firms on PSX through regression analysis show that almost 80% of the factors have a direct relationship with Risk Management Methods. The maximum significant results of the study point out that the capital investment projects are also evaluated by the corporate managers through risk management methods but the application of the financial and strategic methods cannot be ignored. As many of the project financial experts apply the risk management methods simultaneously with the collaboration of other methods as well. The results also show that effect of firm size as a moderator is also partial significant.