The relationship between capital budgeting techniques and financial performance of companies listed at the Nairobi securities exchange
Abstract
This study overall objective was to examine the capital budgeting
techniques used in investment appraisal among companies listed at the
Nairobi Securities Exchange. It sought to establish the techniques of
capital budgeting specifically used by companies listed at the Nairobi
Securities Exchange to undertake their firm’s investments and also to
establish the relationship between the applied capital budgeting
techniques and the financial performance of companies listed in the
Nairobi Securities Exchange. The objective of this study arose due to the
inconsistent research findings both elsewhere and in Kenya. The research
adopted a correlation cross-sectional survey research design which is best
suited for explaining or exploring the existence of two or more variables
at a given point in time. The population of the study consisted of all
companies listed at the Nairobi Securities Exchange. Data was collected
from the primary sources which comprised of the questionnaires
administered to the officers directly involved in capital budgeting as well
the secondary sources which comprised of the data derived from the
published accounts of the companies. The data was analyzed using the
regression analysis model to test the effect of the capital budgeting
techniques on the financial performance of the companies. The study
found out that all of the four capital budgeting techniques researched on;
payback period, net present value, accounting rate of return and internal
rate of return were being used by companies listed in the Nairobi
Securities Exchange and results depicted that there was no correlation
between the financial performance of banks and the capital budgeting
techniques employed. The study concluded that payback period, net
present value, accounting rate of return and internal rate of return capital
budgeting techniques were all adopted by the companies listed at the
Nairobi Securities Exchange and that there was no significant relationship
between the capital budgeting techniques employed and the financial
performance of the same. The study suggests further research be
conducted on other sectors across the Kenyan market to establish whether
the results obtained were homogeneous as well as using a different
financial performance variable(s) to test the same relationship. It is also
recommended that a similar study be carried out in other companies not
listed in the Nairobi Securities Exchange to test the same relationship and
also in a specific industry to obtain homogeneous results.