A Survey of Capital Budgeting Techniques in the Public and Private Sectors of a Less Developed Country (LDC)

Abstract

This study surveys the capital budgeting practice in private and commercially-oriented public sector enterprises in the Sudan, an African Less Developed Country (LDC). The study attempts to fill a gap in the existing literature by documenting the capital budgeting practice in an LDC where the economic environment is different than the developed and developing counterparts and where public sector still plays a major role in the economy.The study found a sizable number of commercially-oriented public corporations that do not use capital budgeting techniques in their capital investment decisions while the majority of private sector companies use these methods. Among the corporations that use capital budgeting methods, both in the public and private sector, the payback method (PB) is the most widely used method, followed by the Internal Rate of Return (IRR) and Net Present Value (NPV) in the private sector and the public sector respectively.The study also revealed additional factors such as cost, size, quality, experience and hard currency requirements that affect the capital budgeting process in both sectors. However, there are differences in the level of importance of these factors between the two sectors.

Capital budgeting practices by non-financial companies listed on Kuwait Stock Exchange (KSE)

“…Corporate success relies on capital budgeting decisions since large outlays of funds are required and long-term commitment as well as firms must ascertain the best way to raise and repay these funds. In empirical literature, capital budgeting practices have been examined in various countries (see e.g., South Africa; [13,14]; USA: [8,[15][16][17][18][19]; Colombia: [20]; Canada: [21,22]; Croatia: [23]; UK: [24][25][26][27]; Singapore: [28,29]; Asia-Pacific region: [30,31]; US and Canada: [21,32]; Sudan: [33]; Sweden: [34,35]; Cyprus: [36]; Australia: [37]; India: [38][39][40][41][42][43]; Netherlands and China: [44]; Japan: [45]; Sri Lanka: [46]; Jordan: [11,47]; Eastern European: [48]; Pakistan: [10,49]; Malaysia: [50] Palestine: [51]; Brazil: [52]; Spain: [53]. Previous studies can be classified into three main ...…”

Islamic finance and market segmentation: Implications for the cost of capital

“…While there is evidence that Sudanese firms use a number of different valuation techniques, such as Internal Rate of Return (IRR) and Payback Period (PB) (Eljelly & Abuldris, 2001), the use of dividend capitalization models (see for example Gordon & Shapiro, 1956) provides an alternative by overcoming the unresolved issues concerning risk-free rates of interest and the lack of suitable benchmarks for conventional valuation models. Since Islamic finance provides for dividend payments, or the distribution of profits, associated with equity ownership (Mannan, 1993) valuation models using dividends are a viable alternative.…”

The role of the stock market in the provision of Islamic development finance: Evidence from Sudan

“…While there is evidence that Sudanese firms use a number of different valuation techniques, such as Internal Rate of Return (IRR) and Payback Period (PB) (Eljelly and Abuldris, 2001), the use of dividend capitalization models (see for example Gordon and Shapiro (1956)) provides an alternative by overcoming the unresolved issues concerning risk-free rates of interest or yield and the lack of suitable benchmarks in conventional valuation models. Since Islamic finance provides for dividend payments, or the distribution of profits, associated with equity ownership (Mannan, 1993) valuation models using dividends are a viable alternative.…”