Title: Investment Decision and Capital Budgeting
Authors: Macaulay-Gbogidi Anne Onoriode, Professor Ehiedu Victor C.
Volume: 9
Issue: 5
Pages: 107-115
Publication Date: 2025/05/28
Abstract:
Investment decisions and capital budgeting are critical components of corporate financial management, particularly in emerging economies where capital constraints and market inefficiencies prevail. This study examines the investment appraisal techniques employed by Nigerian firms, the determinants of their capital budgeting choices, and the implications of these decisions for firm performance. Drawing from a sample of listed companies across key sectors of the Nigerian economy, the study adopts a quantitative research design involving descriptive analysis, correlation, and panel regression techniques. The findings reveal that while advanced discounted cash flow (DCF) techniques such as Net Present Value (NPV) and Internal Rate of Return (IRR) are recognized, many firms still rely heavily on simplistic methods such as the Payback Period, often due to liquidity concerns, managerial risk aversion, and macroeconomic uncertainties. Furthermore, the empirical analysis indicates a positive and statistically significant relationship between the use of rigorous capital budgeting methods and firm performance, as measured by return on assets (ROA) and market valuation indicators. The study highlights that firm size, managerial expertise, and access to finance are significant determinants of the choice of capital budgeting techniques. The results underscore the need for corporate managers to integrate more robust and theoretically grounded appraisal methods into investment decision-making processes. Additionally, policymakers and regulatory authorities are urged to promote financial literacy and capacity building initiatives to enhance corporate investment practices. This research contributes to the growing literature on financial decision-making in emerging markets and offers practical insights for optimizing capital allocation to achieve sustainable corporate growth.