Abstract:
This research adds to the existing literature by using a mixed-methods approach to theoretically and
empirically investigate how capital budgeting techniques and applications diverge between developed
and emerging countries. A sample of 150 firms in each of the case-study-exemplar countries of
Australia and Sri Lanka yielded effective-response rates of 31 and 49 percent, respectively. This study
shows that, Australian firms tend to rely heavily on sophisticated capital budgeting practices and that
while payback-period techniques continue to be used, that usage is declining. Scenario analysis and
sensitivity analysis are, also, widely utilised by Australian companies. In contrast, Sri Lankan firms tend
to use payback period as the primary method for evaluating capital investment and scenario analysis is
often applied. The choice of whether to use more sophisticated techniques vs. simpler alternatives
tends to vary with a firm’s attributes (size, available human capital, etc.) as well as the economic and
financial market development around the firm.
These findings suggest that a firm’s choice of capital budgeting techniques tends to be more related to
the capabilities inherent in the firm than it is to the culture in which the firm is embeded.
