Capital Budgeting Practices of Listed Indonesian Companies

This article reports the results of a survey of executives of companies listed on the Jakarta Stock Exchange regarding their companies’ capital budgeting practices and the major factors influencing their practices. The results show that the majority of responding companies use formal techniques to evaluate proposed capital investments. Of these companies, the majority use a discounted cash flow technique as the primary measure for evaluating capital investment proposals. Scenario and sensitivity analysis are the most commonly-used risk assessment techniques. Risk-adjusted discount rates and the CAPM are not yet widely used in Indonesia. The most important objectives in capital budgeting are growth in cash flows and long-term earnings followed by growth in share price. The results also show that chief financial officer educational background and period of listing influence capital budgeting analysis technique usage.