The Perception of Risk and Uncertainty and the Usage of Capital Budgeting Techniques: Evidence from Public Listed Firms in Malaysia

This paper presents the findings on the perception of risk and uncertainty and theusage ofcapital budgeting techniques employed by public listedfirms in Malaysia.MOSI ofthe firms perceived risk as potential size ofloss where the main source ofuncertainties comes from changes in government policy. While large companiesprefer to use DCF as compared /0 small companies, pay back period is the mostpopular model for those who do not use lX F techniques. Lack ofcompetent staffand information were cited as the main reason for no/ using lX F. Irrespective ofsize affirms, cost of capital as a source ofcompetitive disadvantage is seen as animportant[actor in M A activities rather than replacement expenditure, R D andcompliance investments. Consistent to thefindings of other studies, this study showsthat companies are more inclined to use CAPM to estimate required return byinvestors. Overall, the results suggest that as far as perception of risk anduncertainty and the usage ofcapital budgeting techniques are concerned, theorypracticegap still exists in Malaysia.