Do We Need to Think More about Small Business Capital Budgeting?

Do We Need to Think More about Small Business Capital Budgeting?

5 Pages · 2009 · 88 KB · English

considerations. In other words, the capital budgeting process of small business is likely to be different from that of a large business. The size and availability of capital, investment opportunities, and the nature of the decision makers being different for small businesses may partially explain t

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Vol 4, No 1 International Journal of Business and Management 112 Do We Need to Think More about Small Business Capital Budgeting? Md Mohan Uddin (Corresponding author) School of Business United International University H80, R8/A, Dhanmondi, Dhaka 1209, Bangladesh Tel: 8801713081780 Email: [email protected] Abu Zakir Md Rasel Chowdhury School of Business United International University H80, R8/A, Dhanmondi, Dhaka 1209, Bangladesh Tel: 88028821466 Email: [email protected] Abstract Capital budgeting is one of the most important areas of finance literature This paper discusses whether the capital budgeting theory of large business is well applicable for the small ones or not If it is not, further development of theory becomes necessary This paper conducted detail analysis of the reasons why the development is necessary Followed by the analysis of some theoretical and empirical studies, this paper suggests specific factors to consider in future researches on capital budgeting theory for small businesses Keywords: Small business, Capital budgeting, Investment decision 1 Introduction Capital budgeting is one of the most important areas of finance literature The decision of capital budgeting, or the allocation of fund in assets for a long term, is obvious for both the large and small business Existing theory of capital budgeting explains the investment decisionmaking pattern of large businesses very well This paper discusses whether the capital budgeting theory of large business is well applicable for the small ones or not If it is not, further development of theory becomes necessary Followed by the analysis of some theoretical and empirical studies, this paper suggests specific factors to consider in future researches on capital budgeting theory for small businesses Understanding the pattern of capital budgeting in small businesses is important Small business is a significant portion of total businesses in an economy Also, small business constitutes the starting point for the entrepreneurs According to Deek (1973), small business is an important asset within an advanced industrial economy But they cannot make possible contribution for the economy if they are held back by managerial and entrepreneurial limitations According to FitzRoy (1989), evidences are there to support that small firms are more innovative Furthermore, it is observed that the overall demand for customized goods and services increase than the increase of massproduced goods (Carlsson, 1989) Thus, worldwide experience shows that equitable development from economic and social context is enhanced by the contribution of small businesses (Jeppesen, 2005) All these studies indicate that successful small business is important for an economy And, the success of small business depends on optimal capital budgeting decision This is why small business capital budgeting demands special attention for complete theoretical development This paper is organized in six sections Fixing up the definition of small business is important and the analysis on it is in the second section The third section analyzes the theoretical evidence to show how the small business capital budgeting has a different decisionmaking environment Empirical evidences are discussed in section four Section five and six describes the findings, and conclusion plus research implications respectively 2 Definition of small business Small is a relative term Whether the size of a business is small or large, is a very difficult question The purpose of the definition can play role in determining the borderline Most of the studies on small business capital budgeting used International Journal of Business and Management

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