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Capital budgeting practices and political risk: evidence from Lebanon

Ahmed Bakri (EAE Business School, Madrid, Spain)
Suzanne G.M. Fifield (Department of Accounting and Finance, University of Dundee, Dundee, UK)
David M. Power (Department of Accounting and Finance, University of Dundee, Dundee, UK)

Qualitative Research in Financial Markets

ISSN: 1755-4179

Article publication date: 9 December 2021

Issue publication date: 19 May 2022

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Abstract

Purpose

This paper aims to examine how capital investment projects are appraised in Lebanon; whether the risk is incorporated into this process by Lebanese firms and the impact of political risk on the capital budgeting process.

Design/methodology/approach

This paper uses a questionnaire survey to investigate the capital budgeting practices of companies located in Lebanon, which is a country characterised by a high level of political risk.

Findings

Lebanese companies tend to use more than one method of investment appraisal and, increasingly, they are using sophisticated discounted cashflow techniques alongside the payback period. The most widely used methods to evaluate risk include scenario and sensitivity analysis. Finally, political risk plays an important role in the capital budgeting processes of Lebanese companies.

Originality/value

The paper reports on whether the methods of capital investment appraisal used throughout advanced Western economies are used in the context of an emerging economy. In addition, Lebanon is an ideal research site to study capital budgeting as the conflicts in the country of the past 50 years have required sizeable new expenditure on capital projects; the country is characterised by high levels of political risk which may lead corporate managers to use different approaches to investment appraisal and it provides an opportunity to study capital budgeting decisions by private, unlisted firms.

Keywords

Acknowledgements

The authors would like to thank the anonymous reviewers for their useful suggestions on earlier drafts of this paper.

Citation

Bakri, A., Fifield, S.G.M. and Power, D.M. (2022), "Capital budgeting practices and political risk: evidence from Lebanon", Qualitative Research in Financial Markets, Vol. 14 No. 3, pp. 483-504. https://doi.org/10.1108/QRFM-11-2020-0224

Publisher

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Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

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