Capital Budgeting Practices: A Survey of Two Industries

Abstract

This research examines the capital budgeting practices used by small and medium-sized firms (SMEs) in two Portuguese industries, footwear and metalworking, aiming at answering the following research questions: How much knowledge do managers have about capital budgeting practices? What are the most used practices? How much importance do they attribute to applying them? The research was conducted through an online survey with a response rate of 14.9%. The results document that most companies in both industries are familiar with capital budgeting practices, despite differences between the two. The footwear industry recognizes the importance of these indicators but makes little use of them, and many companies prefer using payback period (PBP). The metalworking industry, on the other hand, makes greater use of capital budgeting practices, with net present value being the favored indicator and PBP being used as supplementary. This study contributes to the capital budgeting literature in two ways: first, by focusing on SMEs instead of only large firms, and second, by exploring data from two industries rather than multiple, heterogeneous industries.

Corporate Finance, Governance, and Social Responsibility

“…This book comprises 27 papers published in the Special Issue entitled "Corporate Finance, Governance, and Social Responsibility", which investigated a variety of practical topics related to corporate finance, financial modeling, corporate governance, and corporate social responsibility. Articles related to corporate finance focused on various approaches to equity investments (Bae et al 2023), the reasons why corporations choose a zero debt policy (Miglo 2020), the drivers of the capital structure (Kedzior et al 2020), the connection between the firm capital structure and its operating environment (Tsolas 2021), how investor connections affect a company's performance , developing a framework to assess and improve performance (Tudose et al 2021), the effect of working capital management on firm profitability (Anton and Nucu 2021), the association between derivative use and firm performance (Wen et al 2021), the relationship between various sustainability measures and the risk of a corporation collapsing (Lääts and Lukason 2022), and capital budgeting practices (Mota and Moreira 2023). Regarding financial modeling, stock market volatility was explored during the coronavirus outbreak (Gherghina et al 2021).…”