The Perception of Risk and Uncertainty and the Usage of Capital Budgeting Techniques: Evidence from Public Listed Firms in Malaysia

Fazilah Abdul Samad, Roselee Shah Shaharuddin

Abstract


This paper presents the findings on the perception of risk and the usage of capital budgetting techniques employed by public listed firms in Malaysia. Most of the firms perceived risk as potential size of loss where the main source of uncertainties comes from changes in government policy. While large companies prefer to used DCF as compared to small companies, pay back period is the most popular model for those who do not use DCF techniques. Lack of competent staff and information were citied as the main reason for not using DCF. Irrespective of size of firms, cost of capital as a source of competitive disadvantage is seen as an important factor in M&A activities rather than replacement expenditure , R&D and that compliance investment. Consistent to the findings of other studies, this study shows that companies are more inclined to use CAPM to estimate required return by investors. Overall, the result suggest that as far as perception ofrisk and uncertainty and the usage of capital budgeting techniques are concerned, theory-practice gap still exists in Malaysia.

ABSTRAK

Kertas ini memperlihatkan penemuan-penemuan berhubung dengan persepsi terhadap risiko dan ketidaktentuan, dan juga penggunaan teknik belanjawan model yang digunapakai oleh firma-firma awam yang tersenarai di Malaysia. Kebanyakkan daripada firma ini menanggapi risiko sebgai kerugian yang berpotensi di mana sumber utama ketidaktentuan ini datangnya dari perubahan-perubahan dalam polisi kerajaan. Firma besar lebih menyukai untuk menggunakan DCF berbanding dengan firma kecil dan "pay-back period" adalah merupakan model yang paling popular kepada firma yang tidak menggunakan teknik DCF. Tabpa mengira saiz firma, kos modal dilihat sebgai satu faktor yang penting dalam aktiviti-aktiviti M&A dan bukannya perbelanjaan penggantian, pelaburan R&D dan pematuhan. Konsisten dengan penemua-penemuan kajian lain, kajian ini juga mendapati firma-firma lebih berminat mengunakan CAPM untuk menganggarkan pulangan yang dikehendaki oleh para pelabur. Secara keseluruhannya, penemuan-penemuan kajian ini menunjukan jurang teori-praktis masih lagi wujud di Malaysia.


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