The purpose of this review paper is to investigate the current state of the art of capital budgeting practices, across countries, determinants influencing capital budgeting practice and providing future research agenda.
The paper offers reasons that have to do with organizational structure and form, as well as market differences, to explain our results.
Extensive use of technical and administrative procedures, such as detailed budgets, standardized forms and post-audits, are evidenced in both countries. Risk management techniques are widely used in both countries, with sensitivity analysis being the most popular technique in both countries. Firms in the UK also make extensive use of discounting but do so to a lesser degree than their American counterparts. Techniques such as payback or urgency continue to be used, but to a lesser degree than discounting. Preliminary results indicate a continued extensive use of discounted cash flow techniques by US firms. The samples consisted of 127 American and 59 British firms with sales of at least $100 million and capital expenditures of at least $10 million. The use of a common instrument allows for more meaningful comparisons. This is the first time that it has been applied to British firms. The survey instrument used is an adaptation of the Klammer instrument that has been used repeatedly in surveys of American firms. A direct comparison of the use of project evaluation, management science, and risk management techniques in the two countries is made. This research is the first comparative survey of practices in both countries that we are aware of. Survey research in the area of capital expenditure analysis has been extensively done in both the United States and the United Kingdom. Capital investments involve substantial monetary commitments and risks that affect long-term firm profitability and influence capital allocation decisions in the future. As companies increasingly compete in the global market place, it is important to study project evaluation processes from an international perspective. Capital expenditures can be crucial to firms long-term success, especially in a complex global environment.