Determinants of the use of capital investment appraisal methods : evidence from the field

Abstract

In this paper, it is argued that there are specific contingencies that explain why firms use and do not use specific capital investment appraisal methods; namely, the pressure of competitive environment, firm’s strategy, production technologies and firm’s age. Several studies on the impact of such variables on management systems can be found in the literature (Abernethy and Lillis, 1995; Langfield-Smith, 1997). Nevertheless, there is little empirical evidence on the factors that explain the use of capital investment appraisal methods (CIAM) by firms. A questionnaire was designed to collect empirical evidence on the use of capital investment appraisal methods in the larger 500 Portuguese non-financial companies. It is expected that, in practice, CIAM could be regarded not only as an ad hoc usage of more or less sophisticated techniques, but characterised by different levels of sophistication and completeness. In this paper, we present an appropriate questionnaire for the analysis of CIAM in practice. Moreover, some research hypotheses for further analysis are presented. Further work using different statistical approaches, different samples and case study research is expected.