Open AccessCapital budgeting practices in Indian companies
Author(s) -
Roopali Batra,
Satish Verma
Publication year - 2017
Publication title -
iimb management review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.425
H-Index - 20
eISSN - 2212-4446
pISSN - 0970-3896
DOI - 10.1016/j.iimb.2017.02.001
Subject(s) - capital budgeting , cost of capital , internal rate of return , modified internal rate of return , corporate finance , net present value , cash flow , economics , volatility (finance) , return on capital employed , discounted cash flow , stock exchange , weighted average cost of capital , business , return on capital , cost of equity , rate of return , present value , finance , economic capital , financial capital , return on investment , capital formation , microeconomics , individual capital , investment performance , production (economics) , project appraisal , profit (economics)
The volatility of the global economy, changing business practices, and academic developments have created a need to re-examine Indian corporate capital budgeting practices. Our research is based on a sample of 77 Indian companies listed on the Bombay Stock Exchange. Results reveal that corporate practitioners largely follow the capital budgeting practices proposed by academic theory. Discounted cash flow techniques of net present value and internal rate of return and risk adjusted sensitivity analysis are most popular. Weighted average cost of capital as cost of capital is most favoured. Nevertheless, the theory-practice gap remains in adoption of specialised techniques of real options, modified internal rate of return (MIRR), and simulation. Non-financial criteria are also given due consideration in project selection
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