Capital Budgeting Practices: a Study on Some Selected Private Commercial Banks in Bangladesh

Asha, Farhana Akther

DSpace Home
→
Faculty of Business and Entrepreneurship
→
DEPARTMENT OF BUSINESS ADMINISTRATION
→
Thesis
→
View Item

Capital Budgeting Practices: a Study on Some Selected Private Commercial Banks in Bangladesh

Asha, Farhana Akther

URI: http://dspace.daffodilvarsity.edu.bd:8080/handle/123456789/5252

Date: 2020-11-25

Abstract:

The target of a sound management is sustainability in the long run. In this competitive era to sustain in the long run, strategic decisions are required. The efficiency also has the necessity to enhance for utilization of limited funds for greater output and utilization of limited resources are demanded to divide into existing and new projects. (Maroyi and Poll, 2012). Most of the developing country provides more power to the financial manager than others. So, they run the firm as their autonomy which makes them worthy of deep thinking and makes the best decisions. Though a firm needs to increase the shareholders' value and for that they need to recognize the conception of a new project, evaluate it, and after that choose the project which gives more value which will help to survive, sustainability, and long-term growth. The procedure of identifying, selecting, evaluating, and investing in fixed assets or projects, which provide the highest return for more than a year is called capital budgeting (Fabozzi and Peterson,2002). The process of capital budgeting is principally associated with the purchase and replacement of fixed assets, business expansion or it can be a new product. (Emery et al., 2007). It is also associated with modernization and the addition of fixed assets, product diversification, new projects, etc.

Description:

Suzette and Howard, (2011) pointed out that, Capital Budgeting is the process of long-term investment, which helps to fund cash for capital, investment, and expenditure. In the long-term and short-term both investments are needed to do capital budgeting which will ensure the sustainability and future benefit of a company. The future benefit like, survive in the competitive market, control the expenditure, and assure profitability. Though capital budgeting is often used for a large amount of expenditure which also helps to repay it for a long-term commitment and since the interest rate is directly influenced by the cost of capital, the firm should pay more consideration in the financial market (Pandey, 2010). On the other hand, cash flow is also can be affected by the investment where risks are associated. The investment is surrounded by financial performance. That's why firms need to evaluate capital budgeting decisions critically. Capital budgeting is a systematic process but the future is unpredictable but it is also consolation that it helps to show the path of success (Dakito and Jaladi, 2017). In this competitive era, sustainability is getting tough. To increase the shareholders wealth, the company is using the capital budgeting for proper uses of the limited fund (Shim and Siegel, 2008). Capital Budgeting is mainly used to purchase and replacement of fixed assets to increase the efficiency of the business activity. (Emery et al., 2007). It is proved that maximum companies use capital budgeting techniques for taking decisions. For example: In Sierra Leone, research shows a positive impact of capital budgeting on the banking sector. Eleven commercial banks were investigated to find out the actual result. By using correlation and regression analysis methods the results were found and it says that in capital budgeting - the payback period has a great impact on ta the performance of non-commercial banks. All the techniques have a positive impact on these banks except the internal rate of return technique (IRR) (Samuel, 2019). But rarely, in contrast, in 2012 where the Kenyan corporations in the viewpoint of maximizing shareholders wealth, the capital budgeting techniques were also applied but none of the techniques shows any positive result (Olum, 2012). Similarly, another research conduct with 400 CEOs in ten countries of Central and Eastern Europe (CEE). All the large, medium, and small firms are included. The research shows that the practice of capital budgeting is affected by the culture, size of the firm, environment, management, etc. Among the firms, 56% of large firms and 44% of small firms are using capital budgeting techniques but the interesting findings are, though the projects are showing positive results on capital budgeting techniques, the management still rejects it. (Andor et al., 2015)

Show full item record