TY - JOUR
T1 - Firm characteristics and the use of investment decision techniques in the global south
T2 - Evidence from Ghana
AU - Owusu-Ansah, Anthony
AU - Addico, Nene Lartey
AU - Amewu, Godfred
N1 - Publisher Copyright:
© 2023 The Author(s). This open access article is distributed under a Creative Commons Attribution (CC-BY) 4.0 license.
PY - 2023
Y1 - 2023
N2 - This study uses a survey approach to investigate how managers associated with thirty (30) firm characteristics subgroups apply thirty-seven (37) investment decision techniques in practice in a frontier market covering: capital budgeting, cost of equity, cost of capital, and adjustments for other types of systemic risk. The results show that 27 out of 30 firm subgroups significantly apply a payback period, and 0 out of 30 firm subgroups significantly apply any of the cost of equity estimation techniques investigated, deviating from the current literature. Nineteen out of 30 firm subgroups significantly apply a single common firm-wide discount rate for all projects, which is in line with global trends but inappropriate. It seems that frontier market managers are leaning toward simplicity as payback period, no cost of equity estimation and using a single common firm-wide discount rate do not properly account for time and risk. This may lead to less optimal investment decisions: resulting in firm value degradation. Promoting policies that reduce uncertainties in frontier markets may encourage the dominant use of net present value, cost of equity estimation and opportunity risk-adjusted cost of capital techniques to support firm value maximisation.
AB - This study uses a survey approach to investigate how managers associated with thirty (30) firm characteristics subgroups apply thirty-seven (37) investment decision techniques in practice in a frontier market covering: capital budgeting, cost of equity, cost of capital, and adjustments for other types of systemic risk. The results show that 27 out of 30 firm subgroups significantly apply a payback period, and 0 out of 30 firm subgroups significantly apply any of the cost of equity estimation techniques investigated, deviating from the current literature. Nineteen out of 30 firm subgroups significantly apply a single common firm-wide discount rate for all projects, which is in line with global trends but inappropriate. It seems that frontier market managers are leaning toward simplicity as payback period, no cost of equity estimation and using a single common firm-wide discount rate do not properly account for time and risk. This may lead to less optimal investment decisions: resulting in firm value degradation. Promoting policies that reduce uncertainties in frontier markets may encourage the dominant use of net present value, cost of equity estimation and opportunity risk-adjusted cost of capital techniques to support firm value maximisation.
KW - Firm characteristics
KW - capital budgeting
KW - cost of capital
KW - cost of equity
KW - investment decision
KW - survey
UR - http://www.scopus.com/inward/record.url?scp=85153716231&partnerID=8YFLogxK
U2 - 10.1080/23311975.2022.2163095
DO - 10.1080/23311975.2022.2163095
M3 - Article
AN - SCOPUS:85153716231
SN - 2331-1975
VL - 10
JO - Cogent Business and Management
JF - Cogent Business and Management
IS - 1
M1 - 2163095
ER -