Year: 2016
Type: article
Abstract: The following hypotheses will be tested: H1: Payback criterion is the dominant investment evaluation technique in Serbia.H2: Factors such as size and ownership may influence the choice of capital budgeting technique.H3: The CAPM model is not the dominant model for estimating the cost of capital in Serbia.This paper will be structured as follows: within the first section we present literature review along with relevant This paper addresses two major research questions: which techniques firms in Serbia use for project evaluation, and how the Serbian companies calculate their cost of capital.The authors have created the questionnaire and the sample consisting of 65 companies that responded to the enquiry (out of 392) during the year 2015.The results showed that payback criterion is the most dominant capital budgeting technique used by firms in Serbia.Further, the results revealed that large firms as well as multinational firms are more inclined to use discounted cash flow capital budgeting techniques and other sophisticated techniques.Finally, the authors have concluded that the CAPM is not the dominant method for calculating cost of capital by the companies from the sample analyzing the overall sample.Consequently, skilled human capital, the adequate knowledge and developed procedures may contribute to accepting capital budgeting techniques such as discounted cash flow analysis and other sophisticated techniques by larger portion of the companies in Serbia.Finally, existence of perfect financial market is a necessary precondition for implementing all these contemporary financial concepts and its development has to be posed as one of the priorities in the years to come.
Institution: Ministry of Trade
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W2518504841