CAPITAL BUDGETING PROCESS: AN EMPIRICAL STUDY OF MANUFACTURING COMPANIES IN INDIA
Abstract
Purpose – This study endeavors to determine the degree to which manufacturing enterprises in India rank the various stages of the capital budgeting (CB) process according to their level of importance, difficulty, and riskiness. It also investigates the impact of managerial and company characteristics on the various stages of the CB process. Research methodology – A questionnaire was administered to 200 NSE-listed non-financial manufacturing companies selected through the CMIE database (predefined set of companies) constituting the sample, as these companies represent all major industries. Appropriate statistical tests were used for the data analysis. Findings – The results of this study are based on responses from 50 Indian CFOs. The results reveal that Indian corporations perceive project identification, development, and selection as more significant than project control. Indian corporations consider the project selection stage the riskiest. Indian CFOs consider project identification and control to be the least risky stage in the CB process. Empirical evidence reveals that the importance, difficulty, and riskiness level of various stages of the CB process (project identification, development, selection, and control) appear to be influenced by company and managerial characteristics. Research limitations – The survey data are drawn from Indian non-financial manufacturing companies, so the findings may not be generalised beyond that context. Practical implications – The findings may be useful to various parties including students, scholars, faculty of finance and corporate managers. It is crucial to understand how corporate managers perceive importance/difficulty/riskiness stage of CB Process. Originality/Value – Prior studies have incorporated a four-stage framework of the CB process (project identification, development, selection, and control) in review studies only; empirical evidence is not available for this approach. This study is unique in that it conducted a survey research using this four-stage CB process in Indian manufacturing companies.
Keyword : Capital Budgeting, Capital Budgeting Stages, Capital Budgeting Process, Manufacturing Companies, CFO.
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References
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