A Strategic Framework to Use Payback Period in Evaluating the Capital Budgeting in Energy and Oil and Gas Sectors in Oman

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1 Interntionl Journl of Economics nd Finncil Issues ISSN: vilble t http: Interntionl Journl of Economics nd Finncil Issues, 2015, 5(2), A Strtegic Frmework to Use Pybck Period in Evluting the Cpitl Budgeting in Energy nd Oil nd Gs Sectors in Omn Mwih Kreem Al-Ani* Dhofr University, Omn. *Emil: mwih@du.edu.om ABSTRACT This study ims to exmine the ssocitions between strtegic vribles nd use the pybck period (PBP) in evluting the cpitl budgeting decisions from the perspective of mngers nd investors in Omn. These vribles re risk, liquidity, profitbility, mrket obstcles, mngement compenstion nd size of the compny. The two smples re investors nd mngers where 57 out of 65 mngers nd 57 out of 75 investors were selected to nswer the questionnire of the study. The questionnire consisted of seven sections with 17 questions. The regression test showed tht the risk nd mngement compenstion vribles hve n impct on the use of PBP from the perspective of mngers. Also, the risk nd profitbility vribles hve n impct on the use of PBP from the perspective of investors. On the second level of nlysis, the finding of the study indictes tht there re no sttisticlly differences between mngers nd investors to use the PBP trced to the ny of the six vribles. Keywords: Strtegic Vribles, Cpitl Budgeting, Pybck Period JEL Clssifictions: M40, M41, G31 1. INTRODUCTION A cpitl budgeting is decision to mke csh outly or investments in order to receive csh inflows in the future (Hll nd Millrd, 2010). Cpitl budgeting is one of the finncil decisions tht primrily concerned with sizble investments in the long-term ssets; tngible such s buildings or intngible such s reserch nd development costs. This decision is very importnt becuse it hs mny consequences on the firm. Cpitl budgeting hs mjor effect on the vlue of the firm, profitbility, the vlue of mrket shre nd shreholder welth mximiztion. There re severl steps to implement the cpitl budgeting such s strtegic plnning, determining nd selecting the investment opportunities, evluting the investments nd others (Dynnd et l., 2002). One of the most importnt steps in this decision is using the cpitl budgeting techniques to evlute the projects or investments. In this context, the pybck period (PBP) is one of the most populr methods in evluting the cpitl budgeting decisions. This technique is defined s the number of yers it would tke to recover project s costs of investment. Despite some problems in pplying the PBP, there is wide cceptnce of this technique by mngers nd investors. One of the problems of PBP technique is tht it ignores csh flows, which re beyond the PBP s well s the time vlue of money. Also, the PBP does not give relistic result. On the other hnd, mngers nd investors usully do not tke other strtegic vribles into ccount besides of the PBP when they evlute the cpitl budgeting decisions. In other words, the cceptnce or rejection of the cpitl budgeting decisions is bsed only on the result of PBP without ny considertion to other strtegic vribles which enhnce the decision. The strtegic vribles re profitbility nd profit mximiztion, liquidity, timing of mngement s compenstion, size of the compny, levels of uncertinty nd risk nd mrket obstcles. These vribles cn be considered s strtegic frmework for decision mker for enhncing the result of PBP in evluting the cpitl budgeting decisions. This study ims to exmine the ssocitions between strtegic vribles nd use the PBP in evluting the cpitl budgeting decisions from the perspective of mngers nd investors in Sultnte of Omn. Moreover, this study tests the differences Interntionl Journl of Economics nd Finncil Issues Vol 5 Issue

2 between two smples working in the sme compnies t energy nd oil nd gs sectors. The problem tht concerns this study is to nswer the following questions: Wht re the strtegic vribles used within the PBP to evlute the cpitl budgeting from mngers, nd investor s perspective? Wht re the differences between mngers nd investors perspective regrding strtegic vribles in evluting cpitl budgeting within PBP? The study consists of seven sections. In the current section, the study presents the introduction including the ims nd the problem of the study. The PBP technique is discussed in the second section. The third section presents the literture review. In the fourth section, the study presents the hypotheses, methodology, smple selection nd questionnire used in the study. Section five provides results of the nlysis nd section six presents the summry nd conclusions. 2. THE PBP TECHNIQUE The PBP technique is bsed on the ide of how much time is needed by the project to generte csh flows sufficient to recover the cost of investments. It cn be lso used s criterion for cceptnce or rejection of projects in the cse tht the PBP is higher or lower certin number of yers previously defined nd to differentite between projects (Afonso nd Cunh, 2009). The PBP technique is commonly used for evluting the investments of cpitl budgeting in compnies for mny resons. Firstly, the technique is very esy to pply nd understnd. Secondly, the technique enbles the mnger to mesure risk of investment by exmining how long it will tke to recover the cost of investment. Thirdly, it is comfortble with the desire of mnger in generting the liquidity. This issue is linked with pecking-order theory where the mngers try to use methods tht crete immedite liquidity. Fourthly, the technique is used by smll nd medium compnies becuse it is simple nd esy to understnd by owners of these compnies where the smll-medium businesses typiclly do not engge in long-term plnning (Nelson nd Cook, 1990). On the other hnd, the PBP technique hs mny deficiencies. First, it ignores the csh flows occurring fter the pybck time, which cn led to the rejection of profitble projects tht require longer recovery period. Second, the PBP does not consider the time vlue of money in clculting the csh flows. One-wy of overcoming this deficiency is to clculte the PBP by pproprite discounting rte of the expected future csh flows (discounted PBP) (Afonso nd Cunh, 2009). Third, Bhndri (2009) rgues tht the PBP technique does not evlute or show the comprehensive imge of the firm performnce becuse it is focus on liquidity but not profitbility. Further, Crsberg nd Hope (1976), rgue tht the PBP technique is blunt instrument becuse the min ide of PBP is n emphsis on the rpid recovery of the investment. The strong cdemic rgument ginst the PBP s vlid technique is further supported by Pike (1985), sttes tht: Acdemic writers hve lmost unnimously condemned the use of the PBP s misleding nd worthless in reching the investment decisions (Mroyi, 2011). The comprehensive imge of the project s performnce requires the combintion between PBP nd strtegic dimensions (vribles) in the environment of the firm. This reltion will enhnce the using of PBP. 3. LITERATURE REVIEW The PBP is one of the most importnt techniques in evluting cpitl budgeting. Therefore, there re mny studies exmine PBP to determine the level of preference of it nd other relted issues. The study of Hll nd Millrd (2010) hs two min objectives. The first one is to investigte the cpitl budgeting techniques of listed South Africn industril firms. The second one is to determine the reltionship between these techniques nd risk. The study concluded tht the finncil mngers use more thn one technique to evlute the cpitl budgeting decisions. One of most importnt results of this study, the mngers use some nonfinncil criteri in the evlution of cpitl budgeting projects such s risk. Ryn nd Ryn (2002) exmine the uses of cpitl budgeting techniques by 1000 chief finncil officers nd finncil mngers. The study concluded tht the chief finncil officers prefer net present vlue in evluting cpitl budgeting projects, wheres the finncil mngers prefer to use of multiple cpitl budgeting techniques including PBP. Alkrn nd Northcott (2006) exmined the use of trditionl finncil nlysis tools nd selected strtegic nlysis pproches in the cpitl investment decision-mking of lrge UK mnufcturing compnies. The study concluded tht the finncil nlysis tools still used in evluting ll types of cpitl investments including the strtegic projects while the strtegic tools rrely used in this re. Awomewe nd Ogundele (2008) investigted the importnce of the use of the PBP technique in the cpitl budgeting decisions. The study lso exmined the importnce of this technique in reltion to some criterion such s simplicity, liquidity, mnger incentive compenstion nd the size of the compny. The study concluded tht this technique relted (but not limited) to its simplicity, liquidity nd risk ssessment. Dnielson nd Scott (2006) nlyze the prctices of cpitl budgeting of smll business. The study uses survey to exmine the reltions between these prctices nd size of the compny. The study concluded tht the size hs n impct on using of prctices. Also, the finding of study indictes the cpitl budgeting prctices used in the smll nd lrge compnies my differ. Pereiro (2006) discussed the chllenges of pplying cpitl budgeting techniques in Argentin, one of the emerging mrkets. On the other hnd, the study discussed the prctices tht the chief finncil officers, finncil dvisors nd privte equity funds meet 470 Interntionl Journl of Economics nd Finncil Issues Vol 5 Issue

3 these chllenges. The finding of the study indicted tht the firms in this country used the trditionl cpitl budgeting techniques (such s PBP) in most of the cpitl investments. Verbeeten (2006) exmines the impct of uncertinty, size nd industry nd cpitl budgeting prctices in 189 Dutch orgniztions. The findings of the study showed tht these fctors hve n impct on the use of cpitl budgeting prctices. Brijll nd Quesd (2008) investigted number of vribles relted to cpitl budgeting prctices in businesses in the Western Cpe province of South Afric. This study exmined the reltionship between some vribles such s size of the firm nd the process of cpitl budgeting. The results of the study showed tht there is positive significnt reltionship between these vribles nd the cpitl budgeting prctices. Afonso nd Cunh (2009) studied the effects of some specific criterion nmely, the pressure of the competitive environment, firm s strtegy, production technologies nd firm s ge on using the cpitl budgeting pprisl methods. The finding of the study indicted tht the firms used the pprisl methods with different levels of sophisticted bsed on these specific criteri. Khks (2009) exmined the use of cpitl budgeting techniques in pprising the investments of informtion systems in 25 commercil bnks in Keny. The findings of the study indicted tht the level of usge of simple techniques (such s PBP) is very high. Lin (2010) in his study sked crucil question; why should people like PBP so much? The study ttempted to nswer this question through discuss the reltionship between PBP nd liquidity nd risk. The study concluded tht the PBP technique is positive ssocited with risk nd liquidity. Therefore, PBP technique stys one of the most populr techniques in evluting the cpitl budgeting decisions. Shinod (2010) exmines the cpitl budgeting prctices in Jpn. The study used questionnire form to get responses of 225 people in chrge of cpitl budgeting t firms listed on the Tokyo stock exchnge. The study concluded tht mngers in chrge of cpitl budgeting t Jpnese firms prefer simple PBP technique in evluting the decisions of cpitl budgeting. This technique is preferred in the re of informtion system (short-term investments), nd they cnnot use the technique in the long-term investment. Hsn (2013) exmines the use of cpitl budgeting techniques in smll business in Austrli. Also, the study exmines the reltionship between PBP nd risk nlysis within the smll business. The findings of the study indicte tht the smll businesses in Austrli use the PBP but without ny indiction to risk nlysis. It my be noted tht the literture review discusses some vribles where PBP nd cpitl budgeting influenced by them. These vribles re risk, liquidity, profitbility, mngement compenstion nd size of the compny. Also, it is noted tht the results of previous studies re mixed. For exmple, the results of study of Lin (2010) tht there is positive ssocition between risk nd liquidity nd using the PBP. In contrst the result of the study of Hsn (2013) indicted tht there is no ny ssocition. It becomes especilly worthwhile to exmine some of vribles since different outcomes re expected to conclude in this re. Also, these vribles re previling in the literture nd previous studies, nd they re not exmining in Omn. 4. METHODOLOGY AND SAMPLE SELECTION 4.1. Hypotheses Development Bsed on the literture review nd theoreticl implictions of PBP technique, the following hypotheses of the study try to imgines the ssocitions from the perspective of investors nd mngers. There re mny studies exmine the ssocition between some vribles nd using the cpitl budgeting techniques. Also, these studies exmine the impct of these vribles on cpitl budgeting techniques such s PBP. Historiclly, the studies crried out mny surveys bout PBP nd other cpitl budgeting techniques. The min conclusion of these studies is tht the reson compnies use the PBP tht is these compnies re not fmilir with sophisticted techniques. Currently, there re mny resons compnies use the PBP nd other cpitl budgeting techniques with develop of strtegic dimensions or vribles in the business environment. These vribles risk, liquidity, profitbility, mrket obstcles, mngement compenstion nd size of the compny were studied. The PBP focuses on quickly bring bck the cost of investment becuse high level of risk in the business. On the other hnd, the PBP focuses on the liquidity rther thn profitbility despite the lst one is more ttrctive for investors but my be chieved in the long-term fter the PBP. Finlly, the study imges more detils bout the ssocition of the bove vribles nd using of PBP in the following hypotheses from investors nd mngers perspective. H1: Vribles of risk, liquidity, profitbility, mrket obstcles, mngement compenstion nd size of the compny hve n impct on using of PBP from the point view of mngers nd investors Risk (R) nd PBP In this regrd, there re mny fcts. Firstly, most results of studies in the re of risk showed tht the mngers re dverse risk. Therefore, they prefer the shorter PBP. Secondly, the PBP is n excellent mesurement of risk becuse it is mesure the required time to bring bck the cost of investment. Mngers nd investors believe tht csh gined tody is more relistic thn the csh to be gined in the future. This ide is link with PBP technique in which the shorter PBPs re more desirble thn longer ones. H2: There re no sttisticlly significnt differences between investors nd mngers to use PBP technique trced to risk. Interntionl Journl of Economics nd Finncil Issues Vol 5 Issue

4 Liquidity (L) nd PBP Trditionlly, the prctitioners nd cdemicins consider tht the PBP s mesure of liquidity (Hjdsinski, 2007). Under pecking-order theory, the investment tht will generte immedite csh flows will be highly fvoured for mngers nd investors, in which PBP technique is the only technique tht will detect this type of investment option (Awomewe nd Ogundele, 2008). PBP technique cn chieve the gol of liquidity becuse the investors nd the mngers desire to bring bck the cost of investment through selection the projects tht chieve immedite csh flows. Investors prefer to get csh s soon s possible becuse they re focusing on the vlue of csh now rther thn the future. Mngers prefer to recover the cost quickly becuse this is reflects their competence in the mngement of the project nd to minimize the degree of risk. H3: There re no sttisticlly significnt differences between investors nd mngers to use PBP technique trced to liquidity Profitbility (P) nd PBP The profit nd mximiztion of profit is the min gol of the compnies. Theoreticlly, there is negtive ssocition between profitbility of the new investments nd using of PBP (Lin, 2010). If the min gol of the compny is to chieve nd mximize the profit of new investment, the PBP technique does not reflect tht gol becuse it does not focus on mximizing the profit of investments tht might be chieved in the long-term fter the PBP. H4: There re no sttisticlly significnt differences between investors nd mngers to use PBP technique trced to profitbility Mrket obstcles (O) nd PBP In this re, the mrket obstcles re ll brriers tht mke it difficult to enter into given mrket or sector. These obstcles tke plce in the mrket through the current investors nd entrepreneurs to prevent the new one from the entry of mrket. If the level of these obstcles is low, the existing projects nd investors will lose high level of profit nd vice vers. Therefore, the current mngers nd investors prefer to use pybck s mesure to bring bck their funds before ny decresing in the obstcles. H5: There re no sttisticlly significnt differences between investors nd mngers to use PBP technique trced to mrket obstcles Mngement compenstion (C) nd PBP Under the gency theory, there is conflict between mngers nd investors (shreholders). The first prty interested with their bonus nd other incentives while the second prty interested with profitbility nd growth of the firm. The mngers prefer to use PBP technique to quickly bring bck csh flows becuse they re risk verse nd not sty long in the sme position. On the other hnd, Pike (1985) s edited by Awomewe nd Ogundele (2008) conducted survey on the reltionship between mngement compenstion nd PBP. This survey showed tht firms interested in chieving the investor benefit not used PBP technique nd vice vers. H6: There re no sttisticlly significnt differences between investors nd mngers to use PBP technique trced to mngement compenstion Size of compny (S) nd PBP Size of the business (new projects or existing projects) my be mesured by totl ssets or totl sles. This vrible hs positive ssocition with cpitl budgeting techniques. Brijll nd Quesd (2008) sid: In the lst three decdes, empiricl reserch involving both lrge nd smll sized businesses hs been conducted extensively on the use of cpitl budgeting techniques. Dnielson nd Scott (2006) determine tht the cpitl budgeting techniques for lrge nd smll firms my differ for mny resons relted to the level of sophisticted business. Most of mngers nd investors of smll business tend to use simple techniques in cpitl budgeting becuse they re interested in immedite csh, limited resources of funds, the projects lck the humn cpcity nd no need to sophisticted computtion. H7: There re no sttisticlly significnt differences between investors nd mngers to use PBP technique trced to size of compny Smple Selection nd Questionnire The trget popultion of the study is mngers nd investors in two subsectors; energy nd oil nd gs mrketing in Sultnte of Omn. Those two sectors re belonging to services sector nd they re very interested sectors in Omn. The energy nd oil nd gs sectors hve cted s the key driver of Omn s economy nd they continue to tke the bckbone in the sultnte s development. For exmple, revenues from oil nd nturl gs ccounted for pproximtely 50% of Omn s gross domestic product in 2013 nd 87.5% of totl government revenues in the sme yer. Since 2008 the Omni s government published renewble energy study where the severl projects re plnned nd implemented. Omni energy nd oil nd gs mrketing compnies re governmentl nd privtely owned. There re eight compnies in the energy sector nd five compnies in oil nd gs mrketing sector listed on Mscut securities mrket. Tble 1 showed the popultion nd smple where 65 questionnires were distributed for mngers nd 75 for investor, nd there re 8 questionnires nd 18 questionnires of energy nd oil nd gs sectors respectively were ignored either they re incomplete or in the different compnies. Therefore, the finl smple included 57 mngers nd 57 investors in the sme compnies. Tble 1: Popultion nd smple Items Energy Oil nd gs Totl Mngers Investors Mngers Investors Mngers Investors Popultion Smple Percentge Source: Prepred by resercher 472 Interntionl Journl of Economics nd Finncil Issues Vol 5 Issue

5 Once the smple hd been selected, the design of the questionnire ws undertken. The questionnire consisted of seven sections; ech section for ech strtegic vribles (risk, liquidity, profitbility, mrket obstcles, mngement compenstion, size of the compny nd the PBP technique). The questionnire designed nd distributed for smple of two popultions. The mngers nd investors sked to determine the strtegic vribles tht they use them within PBP to evlute the cpitl budgeting decisions. The questions were mesured using five-point Likert scle. Likert scles re prticulrly useful to mesure the level of use of technique. Tble 2 summrized the questionnire: As shown in Tble 2, the questionnire hs seven min groups of questions. The first group of questions reltes to the risk. The second group of questions ws designed to describe the liquidity, wheres the third group reltes to the profitbility nd profit mximiztion. The fourth group intends to give n ide of the mrket obstcles. The fifth group of questions reltes to the mngement compenstion. The sixth group concerns size of the compny. The lst group relted to the PBP technique. In order to estblish strtegic frmework for using PBP, the study explores the ssocition between some vribles nd PBP. These vribles re profitbility, liquidity, timing of mngement s compenstion, size of the compny, levels of uncertinty nd risk nd mrket obstcles. The hypotheses developed bsed on the reltionships between strtegic vribles nd using the PBP in evluting the cpitl budgeting decisions from the perspective of mngers nd investors in Omn. 5. RESULTS AND DISCUSSION From the collected dt bout the vribles of two smples, the bove hypotheses were tested. The Cronbch s lph coefficient is used to estimte the relibility of the vribles of two smples. The Cronbch s lph for mngers smple is 0.899, nd for investors smple is Regression Anlysis Regression nlysis, utilizing the ordinry lest squres method, is used to test the first hypothesis. Tble 3 showed the correltions between the vribles s follows: It seems tht the correltions between dependent vrible nd independent vribles of two smples re positive nd significnt t 0.01 (except the reltionship between O nd PBP of smple of investors). The correltions of vribles of smple of mngers re higher thn smple investors. This will help checking the sttisticl reltionship between the dependent nd the independent vribles, nd whether there is ny potentil sign of collinerity. Tble 4 showed tht R 2 is nd 0.628, which implies tht independent vribles included in the model explin 64.5% nd 62.8% of the vrition in PBP. Tble 5 presented the regression results. These results show tht F-rtio is for mngers smple nd for investors smple (P = 0.000). This result sttisticlly supports the significnce of the regression model. Tble 6 indicted the definition of ech vrible in the eqution of two models. Tble 6 explins tht the risk nd mngement compenstion in the mngers smple nd risk nd profitbility in the investors smple re significnt vribles in the regression eqution (significnt < 0.05). It mens tht the mngers used PBP with the bove two strtegic vribles. Also, the investors my use PBP with two strtegic vribles. From the foregoing nlysis, the first hypothesis (H1) which sttes tht the independent vribles hve n impct on using of PBP re ccepted. The mngers believe tht Tble 2: Questionnire s structure Group Strtegic fctors (vribles) Abbrevition Number of questions 1 Risk R 3 2 Liquidity L 2 3 Profitbility P 3 4 Mrket obstcles O 2 5 Mngement compenstion C 2 6 Size of compny S 2 7 Pybck period technique PBP 3 Source: Prepred by resercher Tble 3: Correltions of two smples Smple Vribles R L P O C S Mngers PBP 0.658** 0.533** 0.708** 0.542** 0.567** 0.676** Investors PBP 0.629** 0.528** 0.640** 0.294* 0.585** 0.617** **Correltion is significnt t the 0.01 level (two tiled), *Correltion is significnt t the 0.05 level (two tiled). Source: SPSS output Tble 4: Model summry of two smples Model R R 2 Adjusted R 2 Stndrd error of the estimte Predictors: (Constnt), S, C, R, O, L, P. Source: SPSS output Interntionl Journl of Economics nd Finncil Issues Vol 5 Issue

6 the risk nd compenstion re the importnt vribles in evluting the cpitl budgeting if they re using PBP in the evlution. These results re consistent with the results of study of Awomewe nd Ogundele (2008); Dnielson nd Scott (2006); Brijll nd Quesd (2008); Verbeeten (2006) nd Hsn (2013) in reltion to size. Also, the results of the present study re consistent with Lin (2010) bout liquidity nd risk Mnn Whitney Results The study used Mnn Whitney to test the differences between the two smples. In the independent smples cse, the study used this test becuse the normlity of the smple men for ech one is not chieved. Tble 7 showed the result of Mnn Whitney of differences between investors nd mngers to use PBP technique trced to independent vribles. The significnts of the test 0.566, 0.498, 0.477, 0.329, nd for risk, liquidity, profitbility, obstcles, mngement compenstion nd size respectively re higher thn This mens tht the hypotheses H2, H3, H4, H5, H6 nd H7 re ccepted, nd there re no sttisticlly significnt differences between investors nd mngers to use PBP technique trced to independent vribles. 6. CONCLUSIONS This study exmines the ssocitions between six strtegic vribles nd using of PBP within strtegic frmework for providing bse to explin these ssocitions. Moreover, this study tests the differences between two smples working in the sme compnies t energy nd oil nd gs sectors. These two smples re investors nd mngers where 57 out of 65 mngers nd 57 out of 75 investors were selected to nswer the questionnire of the study. The questionnire consisted of seven sections with 17 questions. The first group of questions reltes to the risk. The second group of questions ws designed to describe the liquidity, wheres the third group reltes to the profitbility nd profit mximiztion. The fourth group intends to give n ide of the mrket obstcles. The fifth group of questions reltes to the mngement compenstion. The sixth group concerns size of the compny. The lst group relted to the PBP technique. There re seven hypotheses were tested. The first hypothesis tested the ssocitions nd impcts of the six strtegic vribles nd PBP technique from the perspective of mngers nd investors. The study used two levels of tests. On the first level, the study used correltion nd regression nlysis to exmine the ssocitions between the six independent vribles nd the dependent vrible nd then exmine the impct of these independent vribles on the dependent vrible. On the second level, the study used the Mnn-Whitney nlysis to test the differences between mngers nd investors to use the PBP techniques. The findings of the study indicte tht there is sttisticlly positive ssocition between risk, liquidity, profitbility, mrket obstcles, mngement compenstion nd size of the compny nd PBP technique. On the other hnd, the finding indictes tht the regression of the model is sttisticlly significnce t 0.05 level of significnce. The model showed tht the risk nd mngement compenstion vribles hve n impct on the use of PBP from the perspective of mngers. Also, the model showed tht the Tble 5: ANOVA b of two smples Model Sum of squres df Men squre F Significnt Mngers Investors Mngers Investors Mngers Investors Regression Residul Totl Predictors: (Constnt), S, C, R, O, L, P, b Dependent vrible: PBP. PBP: Pybck period, Source: SPSS output Tble 6: Coefficients of two smples Models Mngers Investors T Significnt T Significnt (Constnt) R L P O C S Dependent vrible: PBP. Source: SPSS output. PBP: Pybck period Tble 7: Mnn Whitney test sttistics Sttistics R L P O C S Mnn Whitney U 1.524E E E E E E3 Wilcoxon W 3.177E E E E E E3 Z Asymptomtic significnt (two tiled) Grouping vrible: R1. Source: SPSS output 474 Interntionl Journl of Economics nd Finncil Issues Vol 5 Issue

7 risk nd profitbility vribles hve n impct on the use of PBP from the perspective of investors. On the second level of nlysis, the finding of the study indictes tht there re no sttisticlly differences between mngers nd investors to use the PBP trced to the ny of the six strtegic vribles t 0.05 level of significnce. These results re consistent of most results of the previous studies. There re mny resons of these results. The investors re simple, nd the level of investment is not sophisticted. In ddition, the objectives of compnies re the investors objectives, nd becuse most of the mngers re exptrites (most of them from Indin ntionlity), they re chieving the objectives of investors. Also, the mngers nd investors re risk verse, nd they try to minimize the risk through using PBP. Liquidity nd profitbility re importnt to mngers nd investors, so there re no differences between them to use PBP trced to these two vribles. The bility to chnge the fcts nd mke mrket obstcles is very limited in Omn becuse there re lws nd regultions orgnizing the business. According to Omni Compny Lw, the compenstion is not exceeding 5% of net income clculted bsed on interntionl finncil reporting stndrds nd the bility to use this compenstion s n gency cost is limited. The gency costs relted to mngement compenstion re very frgile becuse the objectives of compnies in Omn re the shreholders, objectives nd the mngers pursue to chieve these objectives. Finlly, the mngers nd investors use the PBP regrdless the size of the compny were no sttisticlly significnt differences between them. The PBP technique is simple nd esy to understnd. Locl investors nd mngers in Omn re not sophisticted nd they re using the PBP in evluting cpitl budgeting. This result is consistent with the sme result reported by Dnielson nd Scott (2006) nd Brijll nd Quesd (2008). REFERENCES Afonso, P., Cunh, J. (2009), Determinnts of the use of cpitl investment pprisl methods: evidence from the field. The 2009 Europen Applied Business Reserch Conference (EABR) Prgue, Czech Republic, June 8-11, p3. Alkrn, F., Northcott, D. (2006), Strtegic cpitl investment decision Mking: role for emergent nlysis tools? A study of prctice in lrge UK mnufcturing compnies. The British Accounting Review, 38(2), Awomewe, A.F., Ogundele, O.O. (2008), The importnce of the py bck method in cpitl budgeting decision. Unpublished Mster Thesis, Blekinge Institute of Technology. Bhndri, S.B. (2009), Discounted Pybck period-some Extensions. ASBBS Annul Conference: Ls Vegs, USA, 16(1), Februry Avilble from: pdf. [Lst retrieved on 2014 Dec 22]. Brijll, P., Quesd, L.L. (2008), The use of cpitl budgeting techniques in businesses: perspective from the western cpe. p5. Avilble from: [Lst retrieved on 2013 Sep 23]. Crsberg, B., Hope, A. (1976), Business Investment Decisions Under Infltion: theory nd Prctice, Institute of Chrtered Accountnts in Englnd nd Wles. Dnielson, M.G., Scott, J.A. (2006), The Cpitl Budgeting Decision of Smll Business, the 2005 Finncil Mngement Assocition nd Estern Finnce Assocition Conferences. Avilble from: finl.pdf. [Lst retrieved on 2013 Oct 13]. Dynnd, D., Irons, R., Hrrison, S., Herbohn, J., Rowlnd, P. (2002), Cpitl Budgeting Finncil Apprisl of Investment Projects. Cmbridge: Cmbridge University Press. p4-5. Hjdsinski, M.M. (2007), The pybck period s mesure of profitbility nd liquidity. The Engineering Economist, 38(3), Hll, J., Millrd, S. (2010), Cpitl budgeting prctices used by selected listed South Africn firms. South Africn Journl of Economic Mngement Science, 13(1), Hsn, M. (2013), Cpitl budgeting techniques used by smll mnufcturing compnies. Journl of Service Science nd Mngement, 6, Khks, E. (2009), Cpitl Budgeting for Informtion Systems Investments Evidence from Keny. Avilble from: ssrn.com/bstrct= [Lst retrieved on 2013 Sep 23]. Lin, HJ. (2010), Why should mngers like pybck period? Avilble from: [Lst retrieved on 2013 Sep 23]. Mroyi, V. (2011), Cpitl budgeting prctices: South Africn perspective. Unpublished mster thesis, Wgeningen: Wgeningen University. p31. Nelson, J.L, Cook, R.A. (1990), Cpitl budgeting techniques for smll firms. Avilble from: sbid/1990/pdf/03.pdf. [Lst retrieved on 2013 Jul 09]. Pereiro, L.E. (2006), The prctice of investment vlution in emerging mrkets: evidence from Argentin. Journl of Multintionl Finncil Mngement, 16(2), Pike, R.H. (1985), Disenchntment with DCF promotes IRR, Certified Accountnt, The CPA Journl, July: Ryn, P.A., Ryn, G.P. (2002), Cpitl budgeting prctices of the fortune 1000: how hve things chnged? Journl of Business nd Mngement, 8(4), Shinod, T. (2010), Cpitl budgeting mngement prctices in Jpn A focus on the use of cpitl budgeting methods. Economic Journl of Hokkido University, 39, Verbeeten, F.H.M. (2006), Do orgniztions dopt sophisticted cpitl budgeting prctices to del with uncertinty in the investment decision? A reserch note. Mngement Accounting Reserch, 17, Interntionl Journl of Economics nd Finncil Issues Vol 5 Issue