Review Of Capital Budgeting Techniques: Where Can Research Add Value In The Omani Context?

Abstract :

The paper surveys capital budgeting techniques (CBTs) with emphasis on the emerging practices in Oman, a member of the Gulf Cooperation Council (GCC) driving towards a more sustainable post-carbon economy. CBPs represent an organisation’s aggregate activities undertaken for approving capital investments in pursuance of growth strategies. Given global oil prices’ volatility and public finance deficit pressures, oil-dependent countries like Oman aim to diversify their economies by investing in strategic projects that produce a flow of earnings over the long term. Content analysis tool applied to refereed articles on the subject is deployed along with authors’ involvement in various projects in Oman and elsewhere to provide conceptual, theoretical and empirical perspectives. The relevance of traditional non-discounted cash flow (DCF) approaches, the DCF models, and alternative capital budgeting techniques (ACBTs) such as modified internal rate of return, real options valuation and Monte Carlo simulation are highlighted while recognizing the growing desire for proper integration of financial and non-financial considerations across the markets. Multiple capital budgeting approaches are used in several economies, but the empirical evidence of capital budgeting applications in the Omani context is rather sparse; ACBT application appears to be rare as managers prefer to rely more on the non-DCF techniques. DCF approaches such as net present value (NPV) and internal rate of return (IRR) are more favoured in the developed economies, thus pointing to the resilience of the capital-income theory in contemporary economics. The overall implications for research development and strategic management education are stressed.