National Differences in Capital Budgeting Systems: A Comparison between Indonesian and Australian Firms

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Abstract

Research aims: This study examines the impact of cross-cultural differences on capital budgeting systems.

Design / Methodology / Approach: Drawing on contingency theory, we surveyed 120 non-financial firms in Indonesia and Australia on a comprehensive range of capital budgeting systems.

Research findings: The findings support predictions that relative to Australian firms, the Indonesian firms emphasised more sophisticated capital budgeting systems (e.g. real options). The results seem to be driven by higher perceived environmental uncertainty in Indonesia coupled with Sharia governance rules mitigating risky transactions. We also find support for emphasis on sophisticated capital budgeting systems being driven by firm size and finance manager level of education attainment.

Theoretical contributions / Originality: Prior research has documented an incomplete picture of the link between national culture and capital budgeting systems, notably because of the lack of development of contextual foundations for national differences and consideration of only a narrow range of capital budgeting systems.

Practitioner / Policy implications: The findings of the current study reflect capital budgeting practices in Indonesia and Australia, which is important for practitioners wishing to evaluate project investments in these two countries.

Research limitation: Future research should consider looking into
how Sharia impacts the use of capital budgeting systems and the
performance effects of using different approaches.
Original languageEnglish
Pages (from-to)37-70
Number of pages34
JournalAsian Journal of Business and Accounting
Volume11
Issue number1
DOIs
Publication statusPublished - Jun 2018

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Capital budgeting
Indonesia
National cultures
Firm size
Perceived environmental uncertainty
Governance
Real options
Design methodology
Finance
Investment project
Contingency theory
Prediction
Cross-cultural differences
Education
Managers
Policy implications

Cite this

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title = "National Differences in Capital Budgeting Systems: A Comparison between Indonesian and Australian Firms",
abstract = "Research aims: This study examines the impact of cross-cultural differences on capital budgeting systems. Design / Methodology / Approach: Drawing on contingency theory, we surveyed 120 non-financial firms in Indonesia and Australia on a comprehensive range of capital budgeting systems.Research findings: The findings support predictions that relative to Australian firms, the Indonesian firms emphasised more sophisticated capital budgeting systems (e.g. real options). The results seem to be driven by higher perceived environmental uncertainty in Indonesia coupled with Sharia governance rules mitigating risky transactions. We also find support for emphasis on sophisticated capital budgeting systems being driven by firm size and finance manager level of education attainment.Theoretical contributions / Originality: Prior research has documented an incomplete picture of the link between national culture and capital budgeting systems, notably because of the lack of development of contextual foundations for national differences and consideration of only a narrow range of capital budgeting systems. Practitioner / Policy implications: The findings of the current study reflect capital budgeting practices in Indonesia and Australia, which is important for practitioners wishing to evaluate project investments in these two countries.Research limitation: Future research should consider looking intohow Sharia impacts the use of capital budgeting systems and theperformance effects of using different approaches.",
keywords = "Capital Budgeting Systems, National Culture, Indonesia, Australia, Environmental Uncertainty",
author = "Peter GRAHAM and Suneeta SATHYE",
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AB - Research aims: This study examines the impact of cross-cultural differences on capital budgeting systems. Design / Methodology / Approach: Drawing on contingency theory, we surveyed 120 non-financial firms in Indonesia and Australia on a comprehensive range of capital budgeting systems.Research findings: The findings support predictions that relative to Australian firms, the Indonesian firms emphasised more sophisticated capital budgeting systems (e.g. real options). The results seem to be driven by higher perceived environmental uncertainty in Indonesia coupled with Sharia governance rules mitigating risky transactions. We also find support for emphasis on sophisticated capital budgeting systems being driven by firm size and finance manager level of education attainment.Theoretical contributions / Originality: Prior research has documented an incomplete picture of the link between national culture and capital budgeting systems, notably because of the lack of development of contextual foundations for national differences and consideration of only a narrow range of capital budgeting systems. Practitioner / Policy implications: The findings of the current study reflect capital budgeting practices in Indonesia and Australia, which is important for practitioners wishing to evaluate project investments in these two countries.Research limitation: Future research should consider looking intohow Sharia impacts the use of capital budgeting systems and theperformance effects of using different approaches.

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