Capital Budgeting Practices in Punjab-based Companies - Sanjeev Gupta, Faculty, Apeejay Institute of Management, Jalandhar, Punjab, India.

E-mail: sanjeeveco@hotmail.com - Roopali Batra Faculty, Apeejay Institute of Management, Jalandhar, Punjab, India. E-mail: roopalibatra@rediffmail.com - Manisha Sharma Faculty, Apeejay College of Fine Arts, Jalandhar, Punjab, India. Investment decision, popularly known as capital budgeting decision, is one of the most important decisions that finance managers have to take. In the current era of globalization and competition, selection of profitable investment opportunities is a must for the survival of any company. A number of studies have shown that companies employ several capital budgeting techniques while selecting a project. Based on a primary survey, the present study examines the current status of capital budgeting and explores the techniques preferred by Punjab-based companies. The study also seeks to find whether the factors such as size of capital budget, age of the company and nature of industry have any influence on the choice of capital budgeting methods. As it is found that most of the companies pursue non-discounted methods, the study suggests that they adopt techniques like Net Present Value (NPV) and Internal Rate of Return (IRR), which could deliver better results. Introduction Capital budgeting is considered to be one of the most important activities since decisions related to capital budgeting have long-term implications for a firm. It is the process of making decisions on capital expenditure, which is incurred at one point of time whereas their benefits are realized at different points of time in future. There are several capital budgeting techniques developed to select the best project. Some techniques are non-discounted methods such as Pay Back Period (PBP) and Accounting Rate of Return (ARR), whereas a few of them are discounted methods like Net Present Value (NPV) and Internal Rate of Return (IRR). The present study aims to explore which one of these capital budgeting techniques is used by industries in New Delhi, and the influence of factors such as size of capital budget, age and nature of the company, and education and experience of the Chief Executive Officer (CEO). Towards this end, a primary survey was conducted. The survey results have helped to understand

financial policies of the surveyed companies. Significance of the study stems from the ample scope it provides, first, to certain companies to modify their existing capital budgeting practices in the light of those adopted by successful companies, and second, to researchers in finance to understand the gap between theory and practice so as to re-examine the existing theory. Review of Prior Studies on Capital Budgeting Over the past four decades, research in the area of corporate finance has examined various methods of capital budgeting preferred by industry and how large corporations determine cost of capital while taking capital budgeting decisions. It has been noted that majority of the financial managers and academicians have not been in full agreement as regards the most appropriate capital budgeting method. The key findings of some of the existing studies in India and abroad are highlighted here. To begin with, studies conducted elsewhere outside the country has been reviewed, followed by a review of studies in India. Foreign Studies Majority of the earlier studies report Discounted Cash Flow (DCF) models to be the least popular capital budgeting methods. This is attributed to the lack of financial knowledge and sophistication as well as the limited use of computer technology in those times. According to Miller (1960), and Pike (1996), the Pay Back Period (PBP) technique is the most preferred method. Mao (1969) also specifically points to Net Present Value (NPV) method as the least popular capital budgeting tool. Later, Klammer (1972) reports a change in preference from Nondiscounted to general Discounted Cash Flow models, and subsequently, the majority of published research on capital budgeting indicate the management preference for the use of Internal Rate of Return (IRR) over all other capital budgeting methods. A study of 284 large US corporations by Petty (1975) revealed that 61% of the companies were using IRR, 58% were using PBP, 33% used NPV and IRR. Nearly three-fourth of the sample companies used more than one technique. In another study of the US firms by Schall et al. (1978), it was found that about 86% of the sample firms were using more than one technique and 17% used all the four. The study also revealed that nearly 46% of respondents were using `Weighted Average Cost of Capital' (WACC) as a discount rate. They also concluded that there was a trend towards using of more sophisticated capital budgeting techniques and this level of sophistication was positively related to the size of the firms' capital budget and negatively to firms' beta value in this sample. Block (1997) studied `small business firms' for evaluating capital budgeting techniques. His study reveals that Payback period was the most popular method followed by ARR. For inclusion of risk consideration, `higher required returns' were preferred by the firms. Further, the dominant purpose for the capital investment project was replacement and maintenance. Ken and Cherukuri (1991) concluded that IRR was the number one choice followed by NPV. Evaluators used multiple evaluation methods. The most widely accepted discount rate was WACC and for measuring risk, `Sensitivity Analysis' was the most preferred method, followed by `Increasing the required rate of return', and `Shortening the payback'. Chen's (1995) study examined the impact of firm characteristics on use of capital budgeting techniques. The study

revealed that equipment replacement and expansion of existing business were the most common aspects of investment. The preference of IRR over NPV was also found in the context of countries like Hong Kong, Malaysia and Singapore (Cherukuri, 1996). Jog and Srivastava (1995) and Pike (1996) indicate a diminishing recognition of ARR in Canada and the UK. Thus, it is possible to note that NPV is least preferred to IRR. This is because it is relatively easy to understand percentage return than an absolute dollar value increase in shareholder wealth. Indian Studies In India also, various academicians have carried out research, to study the capital budgeting practices in the Indian corporate sector. Chandra (1975) selected 20 firms to examine the influence of size, industry group and capital intensity on the choice of investment evaluation techniques. The study revealed that `Pay Back Period' method was mostly used for evaluating small size investment and for evaluating large size investments, the corporates preferred ARR. To evaluate investments, companies also looked at profit per rupee invested, cost saving per unit of product and investment required to replace a worker. In a comprehensive study by Porwal (1976), it was found that ARR was preferred over IRR. Companies also preferred Pay Back Period due to the shortage of funds, obsolescence, and easy calculations. The most preferred rate of discount was WACC. The risk factors that were considered by the companies were `chances of unavailability of inputs', `probability of not achieving a target return' and `uncertain market potential'. For incorporation of risk, `Shorter Pay Back Period' and `Higher cut off rate' were preferred. Further, for rationing, `Priorities' and `higher rate of return' were the two main aspects for resolving conflicts among different departments. Pandey (I989) compared the Indian capital budgeting polices with those of the USA and the UK. He studied the companies by following questionnaire-cum-interview method. `Pay Back Period method' was found to be the most popular, followed by IRR and NPV. One-third of the companies were found to be using ARR. There were no fixed criteria for acceptance and rejection of the projects. He advocated the idea that investment evaluation criteria should not be standardized and the characteristics of investment evaluation method must be considered before using it. In computing discount rate, companies specified `Minimum acceptable rate of return' and also WACC. For considering investment risk, `Sensitivity analysis 'and `Conservative forecasts' were too equally used. Sahu (1989) made an attempt to study the trends in fixed investment and its financing. It was found that routine investments were financed through internal sources of funds, whereas growth investment generally utilized the external sources of funds. Purohit et al. (1994) found that the maintenance and development did not matter for fixed investment, which was financed with internal sources and external sources. The study found that Pay Back Period and ARR were the preferred methods, followed by NPV and IRR. Dhankar (1995) analyzed methods of investment evaluation and methods to examine uncertainty in 75 manufacturing companies. He observed that 16% of companies were using DCF Techniques and 33% of companies applied traditional methods like `Pay Back' and ARR.

Further, half of the companies incorporated risk by `Adjusting the Discount Rate' and used `Capital Asset Pricing Model.' In another study by Babu and Sharma (1995), it was found that three-fourth of companies used DCF technique. The companies used `Cost of capital', `Bank Rate' and `Term Lending Rate' of financial institution as the rate of discount. `Sensitivity Analysis' and `Adjustment of Discount Rate' methods were popular for handling risk. Jain and Kumar (1998) found that companies were making regular investment for replacement and maintenance. One-fourth of the sample companies invested for expansion and diversification. The most preferred method was `Pay Back Period' followed by NPV and IRR. Preference for Pay Back Period method was due to its simplicity, less cost, less time, and easy understanding. For hurdle rate, WACC was preferred followed by `Arbitrary rate' and `Marginal cost of additional funds'. The companies, for incorporating risk preferred the `Sensitivity Analysis' followed by `Higher cut off rate' and `Shorter Pay Back Period.' Methodology The study relies on the primary survey conducted. A structured non-disguised questionnaire was used to collect the data from the 32 companies working in Punjab. The questionnaire comprised of 12 important questions. These questions were mainly dichotomous, multiple choice and questions based on the Likert scale. The primary data were analyzed by applying tabular and Chi-square analysis, using SPSS rigorously. Chi-square was used to test the hypothesis; if the null hypothesis is rejected, it could be concluded that there is a statistically significant relationship between the variables. Findings and Discussion The present study aims to unravel the status of capital budgeting in Punjab and throws light on the methods preferred by Punjab-based companies while taking investment decisions. In doing so, the study tests if factors such as size of capital budget, age and nature of the company exert any influence on the choice of methods. Before presenting the results, description of the sample is given. Table 1.1: Industry-wise Distribution of Sample Industry Cotton Spinning (N1) Synthetic Fibers/Silk and Textiles (N2) Electronics (N3) Metal Alloys (N4) General Engineering (N5) No. of Companies 2 5 1 4 5

Banking and Insurance (N6) Chemical Dyes and Fertilizers (N7) Others (N8) Total Description of the Sample

3 2 10 32

The description of 32 companies covered in the study in terms of their nature, age, and ownership is provided through Table 1.1 to 1.3. Size of Capital Budget Although all the companies surveyed are not very large, the size of the annual capital budget did vary among all the respondents (Table 2A). Out of 32 companies in Punjab, 28.1% of companies had a capital budget of less than Rs. 10 mn and 37.5% had between Rs. 10-99 mn. Nearly onethird of respondents had capital budget exceeding Rs. 100 mn. None of the sample companies had capital budget of over Rs. 1 bn. Need for Formal Capital Budgeting Analysis As shown in Table 2B, every respondent required formal capital budgeting, though minimum capital expenditure varied. Table 1.2: Age-wise Classification of Companies Age of Company (in Years) Less than 5 9-May 19-Oct More than 20 Total No. of Companies 2 7 8 15 32

Table 1.3: Distribution of Sample on the Basis of Ownership Ownership Public Private No. of Companies 22 8

Co-operative Total

2 32

Source: Primary Survey. Table 2: Capital Budgeting Practices Amongst Sample Companies (A) Size of Capital Budget Size of Budget (in Rs.) Less than 10 mn 10-99 mn 100-499 mn 500-999 mn More than 1 bn Total Frequency 9 12 7 4 0 32 Percentage 28.1 37.5 21.9 12.5 0 100

(B) Amount of Capital Expenditure Required for Formal Capital Budgeting Size (in Rs.) Less than 1 mn 1-9 mn 10-29 mn 30-59 mn >60 mn Never Total Purpose Expansion into New Business Expansion of Existing Business Equipment Replacement and Modernization Total Frequency 9 12 9 2 0 0 32 Frequency 2 17 13 32 Percentage 28.1 37.5 28.1 6.3 0 0 100 Percentage 6.3 53.1 40.6 100

(C) Purpose of Making Investment

(D) Role of Experience and Education Response Yes No Can't Say Total Methods WACC Cost of Debts Past Experience Expected Growth Rate CAPM Total Measure WACC Cost of Debt Cost of New Equity Arbitrary Historical Rate of Return Cost of Retained Earnings Total Frequency 15 9 8 32 Frequency 7 3 1 2 1 14 Frequency 5 3 2 1 1 2 14 Percentage 46.9 28.1 25 100 Percentage 50 21.6 7.1 14.2 7.1 100 Percentage 35.7 21.4 14.25 7.2 7.2 14.25 100

(E) Methods for Deciding Cost of Capital

(F) Methods of Cut-off Rate or Discount Rate

(G) Consideration of Factors Deciding Capital Budgeting Method Factors Finance Theory Experience and Competency Informal Rule of Thumb Frequency 2 6 4 Percentage 6.3 18.8 12.5

Importance of the Project Easy to Understand Familiarity of Top Management Total Factors Having Fluctuations in Expected Return Non-recoverable Changes in Economic, Social and Political Factors Fear of Obsolescence Total Purpose of Making Investment

7 7 6 32 Frequency 12 13 6

21.9 21.9 18.8 100 Percentage 37.5 40.6 18.8

(H) Type of Risk Involved in Investment

1 32

3.1 100.0

Some of the earlier studies found replacement, modernization and diversification as the most popular avenues for investment by Indian and foreign companies (Jain and Kumar, 1998 and Block, 1997). For the respondent companies of our survey, however, the dominant motivation for making investment was the expansion of existing business followed by equipment replacement and modernization (Table 2C). Only 6.3% of the companies in Punjab showed their willingness for investment in expansion into new business. This shows that, in Punjab investment is mainly done for expansion in the existing business line. Role of Experience and Education The education of top management and their past experience is believed by many to affect the method of investment evaluation. The survey also reveals that 46.9% of the companies believe the same, while 28.1% were against the viewpoint (Table 2D). Thus, majority of the respondent companies feel that the education of CEOs and CFOs and their past experience does affect the choice of the capital budgeting technique to be adopted by the company. Companies with more educated and highly qualified personnel prefer more sophisticated techniques like NPV, IRR in contrast to the non-discounted techniques like Pay Back Period criterionpreferred by the less qualified ones.

Methods for Calculating Cost of Capital The study reveals that less than half of the companies, made use of the time-adjusted or discounted capital budgeting models for calculating cost of capital (Table 2E). The study reveals that nearly one half of the sample companies used the WACC for calculating cost of capital followed by 21.6% preferring the cost of debt. Only one company preferred the CAPM model. The results of the study are consistent with results of the study conducted by Jog and Srivastava (1995), which found that WACC to be used by 47% of the Canadian firms for calculating cost of capital. These field results correspond to the theory, which considers WACC to have the superior base level for cost of capital determinations. Determination of `Cut off Point' or `Discount Rate' Companies have to decide an appropriate discount rate to provide financial justification to the capital project. However, the consideration of risk and the need to earn sufficient return on investment make the choice complicated. The companies were asked to mention the criteria used by them for calculating cut off rate and discount rate in case of time adjusted methods. As seen in Table 2F, the methods of discount rate varied substantially but little over than one third of the sample companies preferred WACC as the discount rate. Consideration of Factors for Deciding Capital Budgeting Method There are a number of factors on which capital budgeting decisions depend. As shown in Table 2G, the `easy understandability' and `importance of the project' are the main factors influencing selection of capital budgeting method. The `experience and competency' and `familiarity of top level management' were considered important by nearly one third of sample companies. The results also show that while considering various factors, most of the firms do not follow academic advice or the prevalent financial theory. Consideration of Risk in Capital Budgeting Decisions All business activities involve risk. Risk analysis is used in capital budgeting to find out the range of variation of results of a proposed project. In the same manner, investments also have risk associated with them because there are uncertainties about the future demand, sales, production and so on. All these elements of uncertainty have to be considered while making investment decision. As the Table 2H indicates, only 40.6% of companies consider non-recovery of invested funds as a major risk factor followed by fluctuations in expected returns. Changes in economic, social and political factors are considered as the third important factor of risk. Only 1 company out of 32 showed fear of obsolescence as a risk factor associated with investment. Methods for Incorporating Risk In business, just as in real life, projects also face uncertainties as far as estimates of future cash flows, economic life of the project and even cost of capital are concerned. Risks are involved in making investments and different companies consider different methods for incorporating risk. In order to analyze how the concept of risk differs with the change in the nature of industry, a

cross tabulation of nature of industry and methods of incorporating risk is done. Table 3 explains the relationship between nature of industry and methods of incorporating risk. As the Table 3 shows, `shorter pay back period' is most popular method of handling risk. It was followed by `sensitivity analysis', `high cut off rates' and CAPM model. Table 3: Two-way Distribution Table of Nature of Industry and Methods of Incorporating Risk (in %) Industry Synthetic Methods of Electronics Fiber Incorporating Cotton and Metal Spinn- Silks and Risk Electrical Alloys ing Woolen & Equipments Textiles Shorter Pay Back Period High Cut off Rates Sensitivity Analysis CAPM Total 50.0 50.0 100 40.0 20.0 20.0 10.0 100 100 100 75.0 25.0 100

Table 3: Two-way Distribution Table of Nature of Industry and Methods of Incorporating Risk (in %) Industry Chemical Methods of Incorporating General Banking/ Dyes/ Engin- Finance/ Pharma- Others Total Risk eering Insurance ceuticals/ Fertilizers Shorter Pay Back Period High Cut off Rates Sensitivity Analysis CAPM 60.0 40.0 33.3 33.3 33.3 100.0 30.0 20.0 40.0 10.0 40.6 25.0 28.1 6.3

Total

100

100

100

100

100

Usage of Multiple Capital Budgeting Techniques Respondent companies were also asked about usages of multiple capital budgeting methods. Out of 32 companies, 30 companies responded in favor of using more than one capital budgeting method. This study is consistent with the results of Petty (1975), which depicted that 74% of the companies studied were using more than one method for evaluating investment proposals. Preferred capital budgeting technique Previous studies indicate that the IRR and Pay Back Period methods are primarily used by Indian companies (Pandey, 1989). The present study has gone beyond IRR and Pay Back Period and asked whether firms use all the seven important methods of capital budgeting. Respondents were asked how frequently they use the different capital budgeting methods on a scale of 1 to 5 (1 meaning "never", 5 meaning "Always"). The selection of methods as responded by the companies are given in Tables 4-6. Table 4 shows that three-fourth of companies do not make use of NPV method, suggesting that NPV is not very popular in Punjab. The probable reasons are difficulties in finding cut off rates and lack of trained personnel. About 80% of the sample companies did not follow IRR and Profitably Index methods and so they are not popular either. The MIRR method has not been introduced in any of the companies in Punjab and no company has taken the risk of introducing and using this method due to so many complications and risks involved, as well as unfamiliarity with the technique. Table 4 also shows that Pay Back Period method is the most popular method among the companies in Punjab. Nearly two-third of the companies make use of ARR method always, often and sometimes. The ARR method uses accounting profits instead of cash flows and does not consider the time value of money. These results, thus, show that sample companies still follow traditional non-discounted methods like Pay Back Period and ARR, which do not consider the time value of money. Table 4: Two-way Distribution Table of Size of Capital Budget and Capital Budgeting Tool (in %) Size of Capital Capital Budgeting Budget Always Often Sometimes Rarely Never Tool (in Rs.) NPV Less than 10 mn 10-99 mn 22.2 8.3 33.3 77.8 58.3

100499 mn 500999 mn More than 1 bn Total IRR Less than 10 mn 10-99 mn 100499 mn 500999 mn More than 1 bn Total Discounted Pay Back* Less Than 10 mn 10-99 mn 100499 mn 500999 mn More than 1 bn Total

14.3

85.7

100

9.4 11.1 -

15.6 -

22.2 25 -

100 75 66.7 75 100

100

3.1 11.1 -

55.6 25 -

42.9

15.6 8.3 14.3

100 81.3 33.3 66.7 42.9

50

50

3.1

25

15.6

6.3

50

Pay Less Back Period than 10 mn 10-99 mn 100499 mn 500999 mn More than 1 bn Total Modified IRR# Less than 10 mn 10-99 mn 100499 mn 500999 mn More than 1 bn Total ARR Less than 10 mn 10-99 mn 100499 mn 500999

33.3 50 42.9

16.7 14.3

33.3 33.3 28.6

33.3 14.3

50

25

25

43.8 -

9.4 -

31.3 -

15.6 100 100 100

100

22.9 25 28.6 25

33.3 33.3 -

22.2 16.7 25

8.3 42.9 25

100 100 22.2 16.7 28.6 25

mn More than bn Total Profitability Less Index than 10 mn 10-99 mn 100499 mn 500999 mn More than 1 bn Total 25 22.2 8.3 21.9 15.6 22.2 15.6 11.1 21.9 44.4 91.7 100

100

9.4

6.3

3.1

81.3

Note: * Chi-square significant at 5% level. # No Chi-square could be computed because Modified IRR is constant. Table 5: Two-way Distribution Table of Age and Capital Budgeting Tool (in %) Methods NPV Age (in Always Often Sometimes Rarely Never Years) Less than 5 5- 9 10- 19 More than 20 Total IRR* Less than 5 50 14.3 12.5 9.4 50 25 20 15.6 50 85.7 62.5 80 75 50

5-9 10 -19 More than 20 Total Discounted Less Pay Back* than 5-9 10 -19 More than 20 Total Pay Back Period Less than 5 5-9 10 -19 More than 20 Total Modified IRR# Less than 5 5-9 10 -19 More than 20 Total ARR Less than 5 5-9 10 -19 More than 20

3.1 14.3 3.1 50 28.6 50 46.7 43.8 50 14.3 25 26.7

100 42.9 25 6.7 25 42.9 37.5 6.76.7

33.3 15.6 50 6.7 15.6 50 14.3 25 6.7

28.6 25 6.7 15.6 13.3 6.3 13.3 6.3 33.3

71.4 75 93.3 81.3 42.9 75 46.7 50 50 42.9 46.7 -34.3 100 100 100 100 100 28.6 12.5 26.7

Total Profitability Less Index* than 5 5-9 10 -19 More than 20 Total

25 50 14.3 12.5 9.4

21.9 -

15.6 50 14.3 6.3

5 14.3 3.1

21.9 57.1 87.5 100 81.3

Note:* Chi-square significant at 5% level. #No Chi-square could be computed because Modified IRR is constant. Table 6: Two-way Distribution Table of Nature of Industry and Capital Budgeting Tool (in %) Methods NPV Always Often Sometimes Rarely Never IRR Always Often Sometimes Rarely Never Always Often Sometimes Rarely Never 20 10 40 50 30 10 10 50 50% 50 40 60 100 25 75 10 90 N1 N2 N3 N4 N5 N6 N7 N8 n=2 n=5 n=1 n=4 n=5 n=3 n=2 n=10

20 33.3

80 66.7 100

100 100 100 100 80 100 100 50 50 40 50 25 100 -

Discounted Pay Back* 60 100

25 100 100

Profitability Index Always Often Sometimes Rarely Never Always Often Sometimes Rarely Never ARR Always Often Sometimes Rarely Never MIRR# Always Often Sometimes Rarely Never 50 50 20 40 20 50 25 25 20 33.3 20 40 20 33.3 50 30 20 30 20 50 50 50 50 100 100 10 20 10 60 30 50 20

100 100 100 100 75 25 60 66.7 50 20 50 -

Pay Back Period 60 100 20 20 -

20 33.3

20 100

33.4 50

100 100 100 100 100 100 100 100

Note: * Chi-square significant at 5% level. # No Chi-square could be computed because Modified IRR is constant. For industry description of N code, see Table 1A. In an open-ended question to find out why companies preferred a method over the other, it was found that companies preferred pay back period method because of its simplicity. Few others favored it on the ground that it is the oldest and even less competent personnel can also handle this method. Moreover, there is also lack of willingness on the part of the personnel to follow sophisticated discounted flow methods. Hypothesis Testing

Ho1: There is no association between the size of the capital budget and different methods of capital budgeting. To test for this hypothesis, Chi-square test was applied individually between the size of the capital budget and each method of capital budgeting considered in this study (Table 4). For the Discounted Pay Back Period method, the Pearson Chi-square test of independence was significant at 5% level. This indicates a significant relationship between size of capital budget and the use of discounted pay back. In case of the rest of the five methods Pearson Chi-square was insignificant, indicating no association between size of capital budget and these capital budgeting tools. Ho2: There is no association between the age of the company and different methods of capital budgeting. Table 5 shows the association between age of the company and capital budgeting tools. It reveals that as far as Pay Back Period, ARR and NPV methods are concerned there is no significant association between tools and age. In case of IRR, Discounted Payback and Profitability Index Chi-square were significant at 5% level. Generally, in these cases it can be seen that older companies have least preference for these discounted techniques while the younger companies go in for these advanced discounted techniques. However, these results are mixed in case of a very important discounted technique, NPV, where no such relation could be established. Ho3: There is no association between the nature of industry and different methods of capital budgeting. The Table 6 depicts the relationship between the nature of industry and the methods of capital budgeting. Chi-square value is insignificant for all the methods of capital budgeting except the discounted Pay Back Period. Discounted Pay Back Period was found significant at 1% level. Conclusion The survey reveals that the status of capital budgeting practices in the state of Punjab is still far from satisfactory. Majority of the sample companies still use non-discounted cash flow techniques, mostly Payback Period criterion to evaluate any new project. Only a very few companies use DCF, and among them a very negligible number use NPV techniques to evaluate a new project. Moreover, majority of the sample companies use the WACC approach to calculate the cost of capital, which is also used as the most preferred discount or cut off rate. For the purpose of incorporating risk in investment decision `shorter pay back period' is the most prevalent method. Similarly, majority of the companies feel that CEO education and experience play an important role in selecting the capital budgeting technique. Further, the study did not find any significant association between the size of capital budget and capital budgeting methods adopted. In fact, evidences suggest that as the size of capital budget increases, companies avoid using discounted techniques like NPV. Similarly, though at some instances it appears that young companies prefer DCF techniques than the older ones, the same is not true in case of NPV method. Thus, age of the company also does not influence the selection

of the capital budgeting technique. Similarly no significant relationship could be established between the nature of industry and investment evaluation techniques. Therefore it can be concluded that capital budgeting practices in Punjab are still in its nascent stage. Companies should move from the traditional non-discounted techniques towards the sophisticated discounted cash flow techniques. References 1. Babu C P and Sharma A (1995), "Capital Budgeting Practices in Indian Industry-An Empirical Study", ASCI Journal of Management, (September), pp. 34-36. 2. Block S (1997), "Capital Budgeting Techniques Used by Small Business Firms in the 1990s", Engineering Economist, Vol. 42, pp. 289-297. 3. Chandra P (1975), "Capital Expenditure Budgeting Analysis in Practice", Indian Management, (July). 4. Chen S (1995), "An Empirical Examination of Capital Budgeting Techniques", Engineering Economist, Vol. 40, pp. 220-232. 5. Cherukuri U R (1996), "Capital Budgeting Practices: A Comparative Study of India and Select South East Asian Countries", ASCI Journal of Management, (March), pp. 30-46. 6. Dhankar R S (1995), "An Appraisal of Capital Budgeting Decision Mechanism in Indian Corporates", Management Review, (July-December), pp. 22-34. 7. Graham J and Harvey C (2002), "How Do CFOs Make Capital Budgeting and Capital Structure Decisions?", Journal of Applied Corporate Finance, Vol. 15, pp. 8-23. 8. Holmen M (2005), "Capital Budgeting and Political Risk: Empirical Evidence", Unpublished Manuscript, Uppsala University. 9. Jain P K and Kumar M (1998), "Comparative Capital Budgeting Practices: The Indian Context", Management and Change, (January-June), pp. 151-171. 10. Jog Vijay and Srivastava A K (1995), "Capital Budgeting Practices in Corporate Canada", Financial Practices and Education, Vol. 5, pp. 387-397. 11. Ken L R and Cherukuri U R (1991), "Current Practices in Capital Budgeting: Cost of Capital and Risk Adjustment", ASCI Journal of Management, Vol. 21, pp. 26-44. 12. Klammer T (1972), "Empirical Evidence of the Adoption of Sophisticated Capital Budgeting Techniques", Journal of Business, Vol. 45, pp. 387-397. 13. Mao J C T (1969), Quantitative Analysis of Financial Decisions, Macmillan: New Delhi.

14. Miller J H (1960), "A Glimpse at Practice in Calculating and Using Return on Investment", NAA Bulletin (now Management Accounting), (June), pp. 65-76. 15. Pandey I M (1989), "Capital Budgeting Practices of Indian Companies", MDI Management Journal, Vol. 2. 16. Petty J W (1975), "The Capital Expenditure Decision-Making Process of Large Corporations", Engineering Economist, Vol. 20, pp. 159-172. 17. Pike R (1996), "A Longitudinal Survey on Capital Budgeting Practices", Journal of Business Finance and Accounting, Vol. 23, pp. 79-92. 18. Porwal L S (1976), Capital Budgeting in India, Sultan Chand & Sons: New Delhi. 19. Purohit B N, Lall G S and Panda J (1994), Capital Budgeting in India, Kanishka Publishers Distributors: Delhi. 20. Sahu P K (1989), Capital Budgeting in Corporate Sector, Discovery Publishing House: Delhi. 21. Schall L D, Sundem G L and Geijsbeek W R (1978), "Survey and Analysis of Capital Budgeting Methods", Journal of Finance, Vol. 33, pp. 281-288. Reference # 01J-2007-02-04-01.

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