Abstract:
This study examined the impact of uncertainty on the application of capital
budgeting practices since the application of capital budgeting practices indicate
trends towards increasing greater sophistication with the performing of multiple tools
and procedures in the current investment markets which are evolving within an
increasingly volatile and intertwined global network in which investments are
strongly exposed to uncertainties. Therefore, the study focused on investment
decision making under uncertainty of an emerging market economy of 186 Sri
Lankan companies. A comprehensive primary survey was conducted to collect data
and exploratory factor analysis had been performed to identify the uncertainty
factors, confirmatory factors analysis was used to validate whether capital budgeting
practices are recognized in theory, in an emerging market. A hierarchical multiple
regression analysis had been performed to investigate the impact of uncertainty on
the application of capital budgeting practices where size of the company was the
control variable. Results of the study revealed that an increase in financial
uncertainty was associated with the application of NPV based advanced capital
budgeting, sophisticated capital budgeting practices and, size of the company was
also related to the application of NPV based and sophisticated capital budgeting
practices. Overall, this study has made a theoretical contribution as melding with
uncertainty factors with capital budgeting practices in the Sri Lankan emerging
market and parametric contributions are identified as uncertainty factors on the
choice of capital budgeting practices. In conclusion, in addition to its valuable
contribution, this study serves as a springboard for future research.
