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Capital budgeting methods - The practices of Polish companies listed on the Warsaw Stock Exchange
Corresponding Author(s) : Żaneta Kielanowicz
Humanities & Social Sciences Reviews,
Vol. 10 No. 6 (2022): November
Abstract
Purpose of the study: In this study, the authors analyzed of the use of capital budgeting methods (CBM) by Polish companies listed on the Warsaw Stock Exchange (WSE). The study's main objective was to investigate the practice of capital budgeting in companies operating in Poland and listed on the WSE, especially to analyze the dispersion of capital budgeting methods and the factors influencing their selection.
Methodology: For achieve the research objectives, a survey method was chosen. The authors received 34 correctly completed questionnaires (from 252, the return rate was 13.5. Descriptive statistics and multiple regression analysis with the use of Statistica were used in the study.
Main Findings: The survey indicated that CBMs are relatively frequently applied in particular; IRR was used (often or always) by 64.7 per cent of companies and NPV by 60.6 per cent of companies. The analysis of company characteristics shows that the use of CBM is influenced by the origin of equity, managerial ownership, employment, and foreign sales (all independent variables are statistically significant).
Applications of the study: The authors believe that the study's results will be of interest to researchers in other countries and will fill a gap in the management accounting literature. The study's results may also be useful from a practical point of view.
Novelty/Originality of the study: The survey shows a large sample of companies, what CBMs are used by Polish companies and how often they are used. A broader set of explanatory variables was also used, which allows for a comprehensive description of campaign practices and makes it possible to analyze whether and which companies' practices are consistent with previous studies.
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- Ahmed I.E. (2013). Factors determining the selection of capital budgeting techniques. Journal of Finance and Investment Analysis, 2(2), 77-88.
- Anand M. (2002). Corporate Finance Practices in India: A Survey. Vikalpa, 2(4), 29-51. https://doi.org/10.1177 /0256090920020404 DOI: https://doi.org/10.1177/0256090920020404
- Andor G., Mohanty S., Toth T. (2011). Capital budgeting practices: a survey of central and eastern European firms. Word Bank, January, 1-45.
- Arnold G., Hatzopoulos P. (2000). The theory-practice gap in capital budgeting: Evidence from the United Kingdom. Journal of Business Finance and Accounting, 27, 603-626. https://doi.org/10.1111/1468-5957.00327 DOI: https://doi.org/10.1111/1468-5957.00327
- Bennouna K., Meredith G.G., Marchant T. (2010). Improved capital budgeting decision making: evidence from Canada. Management Decision, 48(2), 225-247. https://doi.org/10.1108/00251741011022590 DOI: https://doi.org/10.1108/00251741011022590
- Block S. (2005). Are there any differences in capital budgeting procedures between industries? An empirical study. The Engineering Economist, 50, 55-67. https://doi.org/10.1080/00137910590916676 DOI: https://doi.org/10.1080/00137910590916676
- Brounen D., De Jong A., Koedijk K. (2004). Corporate finance in Europe: Confronting theory with practice. Financial Management, 33(4), 71-101. https://doi.org/10.2139/ssrn.559415 DOI: https://doi.org/10.2139/ssrn.559415
- Correia C. (2012). Capital budgeting practices in South Africa: a review. South African Journal of Business Management, 43(2), 11-29. https://doi.org/10.4102/sajbm.v43i2.180 DOI: https://doi.org/10.4102/sajbm.v43i2.180
- Danielson M.G., Scott J.A. (2006). The capital budgeting decisions of small businesses, Journal of Applied Finance, Fall/Winter, 45-56.
- Daunfeldt S., Hartwig F. (2011). What determines the use of capital budgeting methods? Evidence from Swedish listed companies. Social Science Research Network, working paper, 1-37.
- Graham J., Harvey C. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 61, 187-243. https://doi.org/10.1016/S0304-405X(01)00044-7 DOI: https://doi.org/10.1016/S0304-405X(01)00044-7
- Hartwig F. (2012). Four papers on top management's capital budgeting and accounting choices in practice. working paper Upsala University, 1-43.
- Hermes N.P., Smid L.Y. (2007). Capital budgeting practices: a comparative study of the Nederlands and China. International Business Review, 16(5), 630-654. https://doi.org/10.1016/j.ibusrev.2007.05.002 DOI: https://doi.org/10.1016/j.ibusrev.2007.05.002
- Holmen M., Pramborg B. (2009). Capital budgeting and political risk: empirical evidence. Journal of International Financial Management and Accounting, 20(2), 105-134. https://doi.org/10.1111/j.1467-646X.2009.01028.x DOI: https://doi.org/10.1111/j.1467-646X.2009.01028.x
- Klassen K.J. (1997). The impact of inside ownership concentration on the trade-off between financial and tax reporting. The Accounting Review, 72(3), 455-474.
- Leon F., Isa M., Kester G. (2008). Capital budgeting practices of listed Indonesian companies. Asian Journal of Business and Accounting, 1(2), 175-192.
- Liljeblom E., Vaihekoski M. (2004). Investment evaluation methods and required rate of return in Finnish publicly listed companies. LTA, January, 9-24.
- Payne J., Heath W., Gale L. (1999). Comparative financial practice in the USA and Canada: Capital budgeting and risk assessment techniques. Financial Practice and Education, 9, 16-24.
- Pike R.H. (1996). A longitudinal study of capital budgeting practices. Journal of Business Finance and Accounting, 23(1), 79-92. https://doi.org/10.1111/j.1468-5957.1996.tb00403.x DOI: https://doi.org/10.1111/j.1468-5957.1996.tb00403.x
- Rogowski W., Kasiewicz S. (2006). Ocena Opłacalności Inwestycji Społecznych. Bank i Kredyt, 1, 1-12.
- Ryan P., Ryan G. (2002). Capital budgeting practices of the Fortune 1000: How have things changed? Journal of Business and Management, 8(4), 355-64.
- Sandahl G., Sjögren S. (2003). Capital Budgeting Methods among Sweden's Largest Groups of Companies. The State of the Art and Comparison with Earlier Studies. International Journal of Production Economics, 84(1), 51-69. https://doi.org/10.1016/S0925-5273(02)00379-1 DOI: https://doi.org/10.1016/S0925-5273(02)00379-1
- Szychta A. (2001). Zastosowanie metod rachunkowości zarządczej w przedsiębiorstwach w Polsce, Zeszyty Teoretyczne Rachunkowości, 61, 101-119.
- Truong G., Partington G., Peat M. (2008). Cost-of-capital estimation and capital- budgeting practice in Australia. Australian Journal of Management, 33(1), 95-121. https://doi.org/10.1177/031289620803300106 DOI: https://doi.org/10.1177/031289620803300106
- Verbeeten F.H.M. (2006). Do organizations adopt sophisticated capital budgeting practices to deal with uncertainty in the investment decision? A research note. Management Accounting Research, 17, 106-120. https://doi.org/10.1016/j.mar.2005.07.002 DOI: https://doi.org/10.1016/j.mar.2005.07.002
- Verma S., Gupta S., Batra R. (2009). A survey of capital budgeting practices in corporate India. The Journal of Business Perspective, 13(3), 1-17. https://doi.org/10.1177/097226290901300301 DOI: https://doi.org/10.1177/097226290901300301
- Warfield T.D., Wild J.J., Wild K.L. (1995). Managerial ownership, accounting choices, and informativeness of earnings. Journal of Accounting and Economics, 20(1), 61-91. https://doi.org/10.1016/0165-4101(94)00393-J DOI: https://doi.org/10.1016/0165-4101(94)00393-J
- Wnuk-Pel, T. (2011). Ocena i kontrola opÅ‚acalnoÅ›ci inwestycji w przedsiÄ™biorstwach w Polsce – wstÄ™pne wyniki badaÅ„ ankietowych [w:] Rachunkowość, audyt i kontrola w zarzÄ…dzaniu (red. SobaÅ„ska I., TurzyÅ„ski M.), Wydawnictwo UÅ, Åódź 2011, 165-190.
- Wnuk-Pel, T. (2013). Capital Budgeting Practices in Non-manufacturing Companies in Poland. Social Sciences, 4(82), 59-70. https://doi.org/10.5755/j01.ss.82.4.6612 DOI: https://doi.org/10.5755/j01.ss.82.4.6612
- Zarzecki D. (1997). Metody Oceny Efektywności Inwestycji – Wybrane Zagadnienia. Interbook, Szczecin.
References
Ahmed I.E. (2013). Factors determining the selection of capital budgeting techniques. Journal of Finance and Investment Analysis, 2(2), 77-88.
Anand M. (2002). Corporate Finance Practices in India: A Survey. Vikalpa, 2(4), 29-51. https://doi.org/10.1177 /0256090920020404 DOI: https://doi.org/10.1177/0256090920020404
Andor G., Mohanty S., Toth T. (2011). Capital budgeting practices: a survey of central and eastern European firms. Word Bank, January, 1-45.
Arnold G., Hatzopoulos P. (2000). The theory-practice gap in capital budgeting: Evidence from the United Kingdom. Journal of Business Finance and Accounting, 27, 603-626. https://doi.org/10.1111/1468-5957.00327 DOI: https://doi.org/10.1111/1468-5957.00327
Bennouna K., Meredith G.G., Marchant T. (2010). Improved capital budgeting decision making: evidence from Canada. Management Decision, 48(2), 225-247. https://doi.org/10.1108/00251741011022590 DOI: https://doi.org/10.1108/00251741011022590
Block S. (2005). Are there any differences in capital budgeting procedures between industries? An empirical study. The Engineering Economist, 50, 55-67. https://doi.org/10.1080/00137910590916676 DOI: https://doi.org/10.1080/00137910590916676
Brounen D., De Jong A., Koedijk K. (2004). Corporate finance in Europe: Confronting theory with practice. Financial Management, 33(4), 71-101. https://doi.org/10.2139/ssrn.559415 DOI: https://doi.org/10.2139/ssrn.559415
Correia C. (2012). Capital budgeting practices in South Africa: a review. South African Journal of Business Management, 43(2), 11-29. https://doi.org/10.4102/sajbm.v43i2.180 DOI: https://doi.org/10.4102/sajbm.v43i2.180
Danielson M.G., Scott J.A. (2006). The capital budgeting decisions of small businesses, Journal of Applied Finance, Fall/Winter, 45-56.
Daunfeldt S., Hartwig F. (2011). What determines the use of capital budgeting methods? Evidence from Swedish listed companies. Social Science Research Network, working paper, 1-37.
Graham J., Harvey C. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 61, 187-243. https://doi.org/10.1016/S0304-405X(01)00044-7 DOI: https://doi.org/10.1016/S0304-405X(01)00044-7
Hartwig F. (2012). Four papers on top management's capital budgeting and accounting choices in practice. working paper Upsala University, 1-43.
Hermes N.P., Smid L.Y. (2007). Capital budgeting practices: a comparative study of the Nederlands and China. International Business Review, 16(5), 630-654. https://doi.org/10.1016/j.ibusrev.2007.05.002 DOI: https://doi.org/10.1016/j.ibusrev.2007.05.002
Holmen M., Pramborg B. (2009). Capital budgeting and political risk: empirical evidence. Journal of International Financial Management and Accounting, 20(2), 105-134. https://doi.org/10.1111/j.1467-646X.2009.01028.x DOI: https://doi.org/10.1111/j.1467-646X.2009.01028.x
Klassen K.J. (1997). The impact of inside ownership concentration on the trade-off between financial and tax reporting. The Accounting Review, 72(3), 455-474.
Leon F., Isa M., Kester G. (2008). Capital budgeting practices of listed Indonesian companies. Asian Journal of Business and Accounting, 1(2), 175-192.
Liljeblom E., Vaihekoski M. (2004). Investment evaluation methods and required rate of return in Finnish publicly listed companies. LTA, January, 9-24.
Payne J., Heath W., Gale L. (1999). Comparative financial practice in the USA and Canada: Capital budgeting and risk assessment techniques. Financial Practice and Education, 9, 16-24.
Pike R.H. (1996). A longitudinal study of capital budgeting practices. Journal of Business Finance and Accounting, 23(1), 79-92. https://doi.org/10.1111/j.1468-5957.1996.tb00403.x DOI: https://doi.org/10.1111/j.1468-5957.1996.tb00403.x
Rogowski W., Kasiewicz S. (2006). Ocena Opłacalności Inwestycji Społecznych. Bank i Kredyt, 1, 1-12.
Ryan P., Ryan G. (2002). Capital budgeting practices of the Fortune 1000: How have things changed? Journal of Business and Management, 8(4), 355-64.
Sandahl G., Sjögren S. (2003). Capital Budgeting Methods among Sweden's Largest Groups of Companies. The State of the Art and Comparison with Earlier Studies. International Journal of Production Economics, 84(1), 51-69. https://doi.org/10.1016/S0925-5273(02)00379-1 DOI: https://doi.org/10.1016/S0925-5273(02)00379-1
Szychta A. (2001). Zastosowanie metod rachunkowości zarządczej w przedsiębiorstwach w Polsce, Zeszyty Teoretyczne Rachunkowości, 61, 101-119.
Truong G., Partington G., Peat M. (2008). Cost-of-capital estimation and capital- budgeting practice in Australia. Australian Journal of Management, 33(1), 95-121. https://doi.org/10.1177/031289620803300106 DOI: https://doi.org/10.1177/031289620803300106
Verbeeten F.H.M. (2006). Do organizations adopt sophisticated capital budgeting practices to deal with uncertainty in the investment decision? A research note. Management Accounting Research, 17, 106-120. https://doi.org/10.1016/j.mar.2005.07.002 DOI: https://doi.org/10.1016/j.mar.2005.07.002
Verma S., Gupta S., Batra R. (2009). A survey of capital budgeting practices in corporate India. The Journal of Business Perspective, 13(3), 1-17. https://doi.org/10.1177/097226290901300301 DOI: https://doi.org/10.1177/097226290901300301
Warfield T.D., Wild J.J., Wild K.L. (1995). Managerial ownership, accounting choices, and informativeness of earnings. Journal of Accounting and Economics, 20(1), 61-91. https://doi.org/10.1016/0165-4101(94)00393-J DOI: https://doi.org/10.1016/0165-4101(94)00393-J
Wnuk-Pel, T. (2011). Ocena i kontrola opÅ‚acalnoÅ›ci inwestycji w przedsiÄ™biorstwach w Polsce – wstÄ™pne wyniki badaÅ„ ankietowych [w:] Rachunkowość, audyt i kontrola w zarzÄ…dzaniu (red. SobaÅ„ska I., TurzyÅ„ski M.), Wydawnictwo UÅ, Åódź 2011, 165-190.
Wnuk-Pel, T. (2013). Capital Budgeting Practices in Non-manufacturing Companies in Poland. Social Sciences, 4(82), 59-70. https://doi.org/10.5755/j01.ss.82.4.6612 DOI: https://doi.org/10.5755/j01.ss.82.4.6612
Zarzecki D. (1997). Metody Oceny Efektywności Inwestycji – Wybrane Zagadnienia. Interbook, Szczecin.