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Capital Budgeting Practices in Islamic Banking: Evidence from Pakistan
Euro-Asian Journal of Economics and Finance
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| Title |
Capital Budgeting Practices in Islamic Banking: Evidence from Pakistan
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| Creator |
Hussain, Asif
Shafique, Imran |
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| Subject |
Decision making, Capital budgeting, Investments, Discounted cash flow, Islamic bank, Pakistan
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| Description |
The main purpose of this study is to ascertain the amount of current technique in the decision making of a capital budget in the Islamic banking sector, Pakistan, which include real options, and make the result perfect. In Pakistan, a survey of the largest 5 banks and their branches in Faisalabad through e-mail and questionnaires was conducted. Sophisticated techniques tendency have been continued; however, DCF not used by 17% large banks. Among those which did, most of them prefer IRR and NPV. Most of the banks from a selected sample that used DCF were not so effective at it and also ignore real options. Only 8% banks use real options. First limitation is, survey doesn’t show why managers are continually using those capital budgeting techniques for decision making, which are less developed. Second research is conducted in Pakistan using a small and convenient sample size of Islamic banks located in Faisalabad. The basic area where management focuses more is a real option. Other improvement areas are administrative procedures using WACC, adjustment of weighted average cost of capital in different projects/divisions, employment of market values or target for weights and excluding interest expenses from the cash flow of the project .The minimum number of managers feels that there is a need that DCF start using.It is clear from the evaluation that theory practice gap still remains in real options, and in the decisions technique of DCF capital budgeting. Moreover, it is precious to capture stock of views that has been improved in many years. What this study suggests is a fine-grained analysis of decisions making on investment, a composition and completion of different papers on DCF where novel illustrations are made, advice was given to managers to improve the opportunities of investment by making good decisions.
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| Publisher |
Academy of Business & Scientific Research
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| Date |
2013-10-10
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| Type |
info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion Peer-reviewed Article |
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| Format |
application/pdf
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| Identifier |
http://absronline.org/journals/index.php/eajef/article/view/39
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| Source |
Euro-Asian Journal of Economics and Finance; Vol 1 No 1 (2013): October; 9-23
2310-4929 2310-0184 |
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| Language |
eng
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| Relation |
http://absronline.org/journals/index.php/eajef/article/view/39/44
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| Rights |
Copyright (c) 2014 Euro-Asian Journal of Economics and Finance
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