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The purpose of this paper is to provide insight into the capital budgeting decision-making of Canadian and Mexican entrepreneurs in small businesses in the food sector. The objective is to understand the capital budgeting decisions through the lens of bounded rationality and how these decisions are affected by different (national) contexts.

This is a comparative study in which the use of constructivist grounded theory allowed deep conversations about capital budgeting decisions. Data was collected from forty semi-structured interviews with entrepreneurs/managers in two regions, Mexico and Canada.

Insights from this study suggest that entrepreneurs’ capital budgeting decisions are not only taken under conditions of bounded rationality but also suggest a prominent role of context in how bounded rationality is applied differently towards investment decisions.

While the findings cannot simply be generalized, exploring how capital budgeting decisions are made differently across two regional contexts adds to the understanding of the nexus of context, bounded rationality and capital budgeting decision-making.

Using a bounded rationality lens, this study contrasts and explains similarities and differences in the entrepreneur’s capital budgeting decision-making within small businesses. The insights add to the body of knowledge and help entrepreneurs to reflect on their approach to decision-making.

The paper uses a less commonly applied approach to understand two under-researched regional contexts. We use constructivist grounded theory to explore entrepreneurs’ capital budgeting decision-making in small businesses in two regions, Canada and Mexico. The comparative approach and the findings add to the understanding of decision-making, highlight the prominent role of context and also challenge some insights from previous research.

While investment decisions may be financial decisions, there is a growing recognition that they are also often non-financially based decisions. The purpose of this study is to report findings focused on the project selection stage of capital budgeting, which has the objectives of exploring for: the relative degree of emphasis decision makers attach to a financial and non-financial orientation in capital budgeting; and the role, if any, that two agency theory variables have on the relative degree of emphasis: a personal incentive for project go-ahead and monitoring of project outcomes through a post-audit.

Discrete choice experiments (DCEs) are used and framed in a between-subjects 2 (personal incentive) × 2 (monitoring) design. DCEs are well-suited to research questions which examine some tension between competing alternatives. For example, trade-offs involving the relative degree of emphasis decision makers attach to a financial and non-financial orientation in capital budgeting.

In the absence of a personal incentive and monitoring, decision makers attach a significant degree of emphasis to cash inflows and cash outflows, both financial factors, and one strategic non-financial factor being improvement in the position of the firm vis-à-vis competitors in capital budgeting. However, when decision makers receive a personal incentive from project go-ahead, they attach a lower degree of emphasis to cash outflows. Alternatively, when there is monitoring through a post-audit and a personal incentive, decision makers attach a higher degree of emphasis to cash outflows.

Decision makers attach a significant degree of emphasis to only a relatively narrow band of attributes in making a capital budgeting decision, which is true in both the absence of and in the presence of the agency conditions. There is also little support for the view that there is any higher degree of emphasis attached to a financial orientation vis-à-vis a non-financial orientation. A particularly important finding relates to the overarching goal of monitoring through a post-audit. One view is that it should foster more accurate forecasting by making forecasters aware that their efforts will be reviewed. However, the findings of this study appear to be more supportive of a view that post-audits might lead agents to become more conservative or even shy away from projects.

The study makes contributions to the growing field of research which has the objective of exploring for the relative degree of emphasis decision makers attach to a financial and non-financial orientation in capital budgeting. In particular, it extends the prior research through its investigation of the role that two agency theory variables play in the relative degree of emphasis decision makers attach to a financial and non-financial orientation: a personal incentive for project go-ahead and monitoring of project outcomes through a post-audit.

The purpose of this paper is to develop a framework for an enlightened management and governance praxis against a backdrop of cognitive and motivational biases promoting a reflected international capital budgeting decision process. Furthermore, societally relevant questions are raised whether these biases might have an effect on various stakeholders in public–private partnerships. Recurring failures of international business investments motivate reflective, cognitive and socio-constructivist perspectives on the international capital budgeting process.

Based on an interdisciplinary literature review and substantiated by empirical studies, the cognitive biases and flaws of the international capital budgeting process are discussed making use of a five-stage process scheme. The article applies the interpretative paradigm and regards the international capital budgeting process stages as a socio-political process of reality construction and critically assesses the motives of its actors. Consequently, the authors develop and discuss three principle-based behavioural rationalisation factors.

International capital budgeting is not a process of rational choice but of social construction of reality. Reflective prudence, critical communication and independence are three rationalisation factors which could, if applied along the five stages of the international capital budgeting process, systematically lead to de-biasing and thus enhance the performative praxis of international investment decisions.

The international capital budgeting process deals with the construction of future scenarios under uncertainty and assessment of potential success and failure of future projects. The defined (or any other) rationalisation factors are subject to cultural biases and can naturally not guarantee successful investment projects. Although the success of the application of various de-biasing tactics was empirically confirmed, the aggregated rationalisation factors of the paper have not been tested.

The paper is aimed at enhancing the reflective understanding and the performative praxis of the international capital budgeting process. The practical recommendations aggregated in the rationalisation factors are explicitly elaborated for international business practitioners.

Societally relevant questions are raised whether systematic biases have an effect on various stakeholders in international public–private partnerships. Especially in large investment projects, where capturing private value might be boosted by actively exploiting biases of the public decision makers, active stakeholder engagement could enhance the social and ecological value of investments.

The article provides a rare interdisciplinary literature review on cognitive biases in the international capital budgeting process. It critically reflects the social construction of it various stages and its social repercussions and develops practical rationalisation factors for an enhancement of the international capital budgeting process as a performative praxis.

This paper reports on a field study of capital budgeting and strategy in 23 firms. The objectives of the study were two‐fold: first to develop a classification scheme for overall capital budgeting processes and second to relate the different types of capital budgeting to extant models of strategy. Based on our findings, there are three different types of capital budgeting processes: centralized, decentralized and integrated. In centralized capital budgeting, top management make all important strategic capital budgeting decisions. Operating managers simply “bid” on implementing projects selected by top management. In decentralized capital budgeting operating managers identify and initiate projects that are approved by top management based upon projected financial performance. Integrated capital budgeting has elements of both decentralized and centralized capital budgeting. We found the three types of capital budgeting to have a contingent relationship with Bartlett's (1986) typology of multinational strategy: global, multinational and transnational. Global firms choose to respond to pressures for integration and co‐ordination. Typically these firms are highly centralized and have standardized products which can be sold in multiple markets and produced in large‐scale facilities to take full advantage of economies of scale. Multinational firms, in response to pressure to accommodate regional markets through product specialization, operate in a number of highly differentiated markets with significantly dissimilar requirements. In pursuing economies of scope, these firms operate in a decentralized manner with national or regional managers making key strategic decisions. Transnational firms employ a complex structure that addresses the needs for both product differentiation and global integration. In our study, we found that global firms were more likely to have centralized capital budgeting, multinational firms to have decentralised capital budgeting and transnational firms to have integrated capital budgeting. Capital budgeting is one of the most important of management functions. Through capital budgeting decisions management determines the structural cost drivers of the firm and enacts the strategies that define the way in which a firm competes. Although there is an obvious link between strategy and capital budgeting, that link has not been made in either research or practice (Pinches, 1982). The need to understand the link between capital budgeting and strategy is especially evident in manufacturing firms that must continually invest in new technologies. In a review of some 150 articles on capital budgeting for new manufacturing technologies, Dimnik and Kudar (1991) found frequent criticism of current capital budgeting practices for failing to incorporate strategic issues. The most commonly proposed solution to this problem was to modify project evaluation and selection techniques by using multi‐attribute decision‐making models to quantify strategic issues. This response is typical of much of the literature on capital budgeting, which has traditionally focused on the technical issues of project evaluation and selection (Pinches, 1982). A more complete understanding of the relationship between the capital budgeting process and firm strategy will allow specific suggestions for improvement to be implemented. This paper reports on a field study of capital budgeting and strategy in 23 firms involved in a wide range of manufacturing activities. The objectives of the study were two‐fold: to develop a classification scheme for overall capital budgeting processes, and to relate the different types of capital budgeting to extant models of strategy. We found it necessary to develop a new classification scheme for capital budgeting because the standard model of capital budgeting does not explain practice (Dimnik, 1991). The traditional model of capital budgeting assumes that projects bubble‐up from operating managers for approval by top management and emphasizes the use of discounted cash flow methods of selecting projects. The bubble‐up assumption of capital budgeting can be traced to Bower (1970) and the pre‐occupation with discounted cash flow techniques to Dean (1951). Bower held that: [A] company's top management approves or rejects projects but has little direct influence on how they get defined or on which ones are pushed through the firm's lower levels of decision‐making to become claimants for top‐executive approval…Top management cannot keep the character and composition of the projects that rise for their approval from being coloured by structural context. However, top management can influence that structural context by means of the organization chart…and the measurement and reward system it employs (Caves, 1980, p.76). This bubble‐up assumption is implicit in most capital budgeting research and is incorporated in leading accounting and finance text‐books. For, example, Haka (1987) described the impact of rewards on the path that a “proposal follows from its originator in operations to its approval by top corporate executives”. Principles of Corporate Finance, Brealey et.al., stated that “most firms let project proposals bubble‐up from plants for review by division management, and from divisions for review by senior management”. Accounting: Text and Cases, Anthony and Reece stated that “as proposals for capital expenditures come up through the organization, they are screened at various levels. Only the sufficiently attractive ones flow up to the top and appear in the final capital expenditure budget”. Dean (1951) defined capital budgeting in economic terms and stressed that without systematic acceptance and rejection criteria, the capital budgeting decision has no solid foundation. He recognized that procedural and organizational issues were important in capital budgeting but defined the “problem” of capital budgeting as finding the answers to three questions: (1) How much money will be needed for the expenditures in the coming period? (2) How much money will be available? (3) How should the available money be doled out to candidate projects (p.555)? Dean emphasized discounted cash flow methods and this emphasis is adopted in leading accounting and finance text‐books and colours much of the academic research on capital budgeting (Pinches, 1982). It is especially evident in the many surveys of capital budgeting practices (Oblak and Helm, 1980; Bavishi, 1981; Stanley and Block, 1984; Woods et.al., 1985; Hodder, 1986; Kim, 1986; McLean, 1986; Baker, 1987; Klammer et.al., 1991). The bubble‐up, discounted cash flow model of capital budgeting is inadequate for explaining what is found in actual practice. For example, in a survey of 32 operating managers, Dimnik (1990) found that in some firms operating managers initiated capital budgeting proposals and were very conscious of financial criteria for project approval and aware of the impact of investment decisions on their measures of performance. In other firms, operating managers had little say in investment decisions and little knowledge of financial criteria applied to investment proposals. In these firms, analytical techniques such as discounted cash flow, when used at all, were used only by top management and their staff to justify their decisions. Based on these and other personal observations, we concluded that before we could offer insights into the relationship between capital budgeting and strategy, we had to first develop an understanding of capital budgeting that went beyond the traditional model. The remainder of the paper is organized as follows. In the next section, we define capital budgeting and briefly discuss various frameworks for analyzing strategy. Then we describe our field research and provide a general description of our findings. This is followed by a discussion of a new classification scheme for capital budgeting and the suggestion that capital budgeting is related to a firm's strategy for global competition. The paper ends with a discussion of the shortcomings of the study, the implications of our findings and some suggestions for future research.

To analyze capital budgeting practice in a group of small cotton ginning firms in Brazil. The study aims at describing how investment decision-making in the agribusiness context may be influenced by heuristics and by the business setting.

This research adopted an exploratory and qualitative approach in gauging the practice of capital budgeting in Brazilian cotton ginning firms and discussing actual managerial decision-making. Data collection involved interviews with managers of ten different firms and a further content analysis was performed.

Results reveal a practical managerial approach aimed at ensuring satisfactory net operating results in the short run. Sophistication in capital budgeting is not considered as essential, as institutional and strategic environment influences directly affect impose high risks. Investment decision-making is highly influenced by managerial experience.

Because of the chosen research approach, results may lack generalizability. However, in addressing a specific sector in a specific location, one can identify and craft strategies in response to managerial needs more effectively.

The paper clarifies how heuristics, managerial experience and the institutional context may influence investment decision-making in cotton ginning operations. It also suggests how actions aimed at evaluating risk and improving the screening of investment perspectives could contribute to improve investment decisions.

The paper provides an in-depth perspective in addressing the practice of capital budgeting in the context of a specific activity and describing key issues related to it.

This article focuses on three related themes. Firstly, normative decision rules for the international capital budgeting decision are outlined. Secondly, the strengths and limitations of finance theory in guiding the capital budgeting plan within the MNC are discussed. Thirdly, strategic views are introduced to complement financial analysis in the area of international capital budgeting.

Sees the objective of teaching financial management to be to help managers and potential managers to make sensible investment and financing decisions. Acknowledges that financial theory teaches that investment and financing decisions should be based on cash flow and risk. Provides information on payback period; return on capital employed, earnings per share effect, working capital, profit planning, standard costing, financial statement planning and ratio analysis. Seeks to combine the practical rules of thumb of the traditionalists with the ideas of the financial theorists to form a balanced approach to practical financial management for MBA students, financial managers and undergraduates.

The purpose of this paper is to provide additional empirical evidence about capital budgeting practices in an emerging economy.

The study utilizes a questionnaire and interview to collect data from respondents.

The results show that the JIC give almost equal importance to the discounted and undiscounted cash flow methods in evaluating capital investment projects. It appeared also that the most frequent used technique is the profitability index followed by the payback period.

Based on these results, the researchers recommend putting a great attention to apply the concepts and techniques of capital budgeting in an appropriate manner. The corporations should also consider importance of information technology and its applications in capital budgeting.

This is the first study applied on the capital budgeting practices and its related issues in the JIC.

The purpose of this paper is to examine the current trends of capital budgeting practices (analysis techniques, discount rate estimations and risk assessment methods) among Pakistani listed firms and analyze the responses conditional on firms’ demographics and executive characteristics.

An online questionnaire was sent via e-mail to top 200 non-financial firms (in terms of market capitalization) listed on Pakistan Stock Exchange.

With a response rate of 35 percent, it is concluded that the theory–practice gap is low as Pakistani listed firms are using discounted cash flow methods of capital budgeting and preferring net present value over internal rate of return. Similarly, weighted average cost of capital is estimated using target value weights, and capital asset pricing model (with extra risk factors) is used to determine the cost of equity capital. For risk assessment, sensitivity analysis and scenario analysis are the dominant approaches; however despite the theoretical superiority, the use of real options is very low. Overall, investment decision responses significantly differ across firm’s demographics and executive characteristics.

Pakistani business schools need to address the low usage of advanced methods such as modified internal rate of return and real options among Pakistani listed firms.

This is the first comprehensive study on the topic in Pakistan and have highlighted the areas of capital budgeting where Pakistani firms’ practices deviates from finance theory.