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Capital budgeting

important part of financial planning and management, especially as the global economy changes and faces new challenges and opportunities.

involves assigning resources for long-term investments, evaluating potential projects, and determining their feasibility and expected returns.

Current practices show a trend toward including new technology, sustainability issues, and strategic growth efforts, helping organizations stay competitive and innovative.

When looking at the social and political aspects of capital budgeting, the focus is on the crucial role of budget readiness for infrastructure development in regions undergoing major changes, such as Indonesia’s capital relocation (Baharuddin et al., 2022).

It was noted that understanding regional planning, environmental factors, and bureaucratic dynamics is vital for making effective capital budgeting choices. Such analyses reveal the connection between economic elements, cultural evaluations, and good management practices in achieving strategic goals in capital projects.

Human capital development

become a major concern that intersects with capital budgeting processes. Research shows that strategic budget allocation for education and health not only boosts human capital but also leads to better economic outcomes.

For example,findings indicate that investments in education positively affect workforce skills and

performance, benefiting the overall economy (Sriyana et al., 2024). This link between capital

budgeting and improving human resources highlights the need to consider social and economic

factors in investment decisions.

In terms of sustainability, the capital budgeting process for small and medium-sized

enterprises (SMEs) is evolving to tackle sustainability challenges more effectively. A study by

Shields et al. (2024) examined how SMEs can use capital budgeting to invest in sustainable

projects that promote organizational growth and support broader social goals. This emphasis

on sustainability shows the urgent need for modern capital budgeting practices to factor in

environmental issues, aligning financial choices with long-term ecological responsibility.

As capital budgeting practices continue to change, it is clear that organizations need to

take a multi-layered approach that includes technological innovations and sustainability goals.

By combining these elements, modern capital budgeting frameworks can better meet the

challenges of today’s economy, ensuring that investments provide immediate financial gains

while also offering long-term advantages.

In conclusion, the current practices and development of capital budgeting show a

complex relationship between traditional financial measures and modern societal needs. The

growth of this area highlights a rising awareness of the importance of smart governance, human

capital development, and sustainability. These factors together shape the future of capital

budgeting, ensuring it remains relevant and effective in navigating the complexities of today’s

economic landscape.

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Human capital development become a major concern that intersects with capital budgeting processes. Research shows that strategic budget allocation for education and health not only boosts human capital but also leads to better economic outcomes.

In terms of sustainability, the capital budgeting process for small and medium-sized enterprises (SMEs) is evolving to tackle sustainability challenges more effectively.

As capital budgeting practices continue to change, it is clear that organizations need to take a multi-layered approach that includes technological innovations and sustainability goals.

By combining these elements, modern capital budgeting frameworks can better meet the challenges of today’s economy, ensuring that investments provide immediate financial gains while also offering long-term advantages.

In conclusion, the current practices and development of capital budgeting show a complex relationship between traditional financial measures and modern societal needs. The growth of this area highlights a rising awareness of the importance of smart governance, human capital development, and sustainability. These factors together shape the future of capital budgeting, ensuring it remains relevant and effective in navigating the complexities of today’s economic landscape.

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CAPITAL BUDGETING METHODS IN INVESTMENT FIRMS IN BRAZIL AND SPAIN

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CAPITAL BUDGETING METHODS IN INVESTMENT FIRMS IN BRAZIL AND SPAIN

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In Brazil, capital budgeting practices among investment-related firms are less sophisticated compared to those in more developed nations like Spain.

This analysis delves into Brazil's heavy reliance on the Internal Rate of Return (IRR) coupled with a high level of randomness in determining the minimum acceptable return, while also allowing for risk assessment through scenario analysis (Lunkes et al., 2015).

The budgeting practices observed globally contrast significantly with those in Brazil, which are noted for their comprehensive support of Net Present Value (NPV), IRR, Payback Period (PP), and Real Options Valuation in evaluating investment opportunities

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THE SIGNIFICANT CHALLENGES PRESENT IN BRAZIL

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THE SIGNIFICANT CHALLENGES PRESENT IN BRAZIL

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The limited application of advanced techniques (such as Monte Carlo, WACC, and NPV simulations).

The turbulent economic conditions impact risk evaluations (including government policies and uncertain financial market situations).

There has been a decline in structured investment manuals and standardized models (Lunkes et al., 2015).

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The governance of ports in Brazil has been influenced by:

a) The structure of public management has considerably affected bureaucratic delays in infrastructure investments.

b) The lack of capability to develop information systems has led to inaccuracies in projected cash flows after the audit process.

c) A substantial reliance on maintenance projects at 85%, with an inability to expand them by 10% or to initiate new ventures by 5% (Lunkes et al., 2015).

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Port of Spain has revealed advanced capital budgeting practices, which feature:

The application of comprehensive techniques: Utilizing WACC, Real Options, PP, IRR, and NPV to determine the rate

Advanced risk analysis: Executing sensitivity analysis, scenario analysis, and decision trees.

Governance conducted in a methodical manner: Using formal investment manuals, post-audit reviews, and a very high predictability of economic variables (Lunkes et al., 2015)

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Brazilian ports hold the 101st position globally regarding container management, whereas Spanish ports are positioned 26th in terms of container handling (Lunkes et al., 2015).

Brazil allocates only 5% of its total investment towards new port expansion, in contrast to Spain's 15% (Lunkes et al., 2015).

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Implementing the WACC method for discounting instead of the random rate approach.

Performing post-audit evaluations and creating investment manuals.

Improving training programs focused on advanced methodologies (such as Real Options and NPV).

Upgrading IT systems to enhance the accuracy of cash flow forecasting predictions.

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a) BRIDGING THE GAP BETWEEN THEORY AND PRACTICE

The research conducted highlights the ongoing gap between practical applications and academic recommendations (e.g., the supremacy of WACC and NPV), particularly in Brazil, a developing country.

In contrast, the economic situation in Spain aligns with the approach practiced in modern financial theory (Graham & Harvey, 2001).

Meanwhile, Brazil's reliance on IRR and random rates can be interpreted through:

i. Institutional constraints:

A lack of training and bureaucratic processes.

ii. Behavioral bias:

Uncertain environments have led to a preference for simpler metrics (e.g., payback) (Hermes et al., 2007).

b) POLICY IMPLICATIONS

Brazil:

Port expansion is limited by a lack of funding (only around 5% of the total budget), which has hindered trade competitiveness.

Spain:

Advanced techniques (e.g., Real Options) are employed to support post-Brexit measures from adaptive infrastructure planning.

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Sample Bias:

limits the generalizability and focuses solely on one example from each country examined.

Temporal Data:

Out of the 215 findings gathered, none shed light on changes occurring after the pandemic (e.g., Brazilian port privatization reform 2022).

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Cultural Factors:

Hofstede's uncertainty avoidance (which is notably high in Brazil) has been neglected in this study, prompting the use of the Technique. b) Real Options

Are Underutilized:

No country completely integrates value in markets that display volatility (Block, 2007).

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Brazil:

The implementation of WACC and the lack of a post-audit requirement are inconsistent with IAS 38.

Spain:

The full reliance on the EU framework has caused the local port advantages to be overlooked

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RECOMMENDATIONS FOR ENHANCING FUTURE RESEARCH

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RECOMMENDATIONS FOR ENHANCING FUTURE RESEARCH

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Geographic Diversification:

Analyze different ports in Latin America (such as Argentina and Chile) alongside those in Europe.

Longitudinal Analysis:

Investigate the advancements achieved by Brazil following its privatization from 2022 to the current date.

Comprehensive Integration of Behavioural Accounting:

Performing an in depth analysis of how managerial biases influence the selection of various techniques.

Climate Risk Assessment:

In accordance with IFRS S2, feasibility metrics (for instance, carbon-adjusted NPV) have been integrated.

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RECOMMENDATIONS FOR ENHANCING FUTURE RESEARCH

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CAPITAL BUDGETING PRACTICES IN MULTINATIONAL CORPORATIONS: A COMPARATIVE ANALYSIS OF INDIA AND BANGLADESH(2020-2025)

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CAPITAL BUDGETING PRACTICES IN MULTINATIONAL CORPORATIONS: A COMPARATIVE ANALYSIS OF INDIA AND BANGLADESH(2020-2025)

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1. Economic Reforms & FDI:

Significant evolution due to economic reforms and market liberalization.

Increased foreign direct investment (FDI) and improved financial practices.

2. Basel III Impact:

Required reassessment of capital structures in Indian banks.

Influenced multinational corporations (MNCs) to adopt stricter risk-weighting in project finance.

Increased use of Risk-Adjusted Return on Capital (RAROC) models.

3. Advanced Methodologies:

Monte Carlo simulations (55% adoption rate) to manage currency volatility.

Real options valuation to address regulatory fragmentation.

4. Implementation Gaps:

Only 40% of firms incorporate Basel III’s operational risk metrics.

Bureaucratic delays increase project costs by 15-20%.

5. Future Challenges:

Need for harmonization of state-level regulations.

Integration of climate risk premiums into capital allocation frameworks.

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1. Systemic Challenges:

Insufficient financial infrastructure (underdeveloped bond market, banking sector risks).

High non-performing loans (NPLs) at 28% in 2023, increasing WACC by 300-400 basis points.

2. Slow Institutional Reforms:

BIDA Act (2021) reforms delayed due to bureaucratic inertia.

MNCs face fragmented data for project appraisals.

3. Primitive Capital Budgeting Methods:

Only 30% of firms use Discounted Cash Flow (DCF).

70% rely on basic payback periods due to unreliable inflation forecasts and political instability.

45% of projects face delays linked to elections.

4. Remittance-Driven Economy:

$24 billion remittances (28% of GDP) distort capital allocation.

Funds flow into real estate, retail, and textiles (short-term, low-risk projects).

68% of FDI goes to consumption-driven sectors, while renewable energy gets only 4%.

5. Liquidity Misjudgment & Risks:

Remittance surge creates false liquidity perception.

COVID-19 exposed risks: 32% of textile projects faced solvency crises due to remittance drops.

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The regulatory framework surrounding capital budgeting in India is shaped by the Indian Accounting Standards (Ind AS), which closely align with International Financial Reporting Standards (IFRS).

This alignment fosters transparency and comparability for MNCs operating globally.

In Bangladesh, the adoption of accounting standards while improving still reflects certain inconsistencies with international practices that impact the reliability of financial reporting (Mollah et al. 2023; Munir and Mumtaz 2021). The discrepancies in adherence to international standards pose risks, such as misallocation of resources and lack of investor confidence

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The frameworks for capital budgeting used by multinational corporations (MNCs) in Malaysia and Singapore show significant differences influenced by the economic conditions, regulatory landscapes, and management practices of each country.

It is essential to understand the elements that affect these practices, such as corporate governance, sustainable development, and financial management, for a thorough evaluation.

In Singapore, MNCs usually adopt a more organized and sophisticated method of capital budgeting.

This approach aligns with the country’s well-established financial markets and regulatory framework, which emphasize corporate governance and sustainability.

Financial management strategies in Singapore require thorough risk assessments and investment evaluations, prompting businesses to adopt advanced capital budgeting methods that enhance investment returns.

In contrast, Malaysia offers a different context where the capital budgeting practices of multinational companies might not exhibit the same degree of sophistication.

Despite governmental support for small and medium-sized enterprises (SMEs), Malaysian MNCs often struggle with less organized financial management frameworks and a perceived negligence towards capital budgeting procedures.

Additionally, the economic conditions and investment environments in the two nations significantly impact their capital budgeting evolution.

In Singapore, MNCs take advantage of substantial intellectual capital and investment prospects supported by a favorable business landscape, leading to more efficient capital allocation strategies (Prasetya & Venusita, 2023)

In contrast, the research has pointed out challenges related to tax management and governance in the landscape of MNCs in Malaysia, which can hinder the application of effective capital budgeting frameworks.

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The capital budgeting methods used by multinational companies in Malaysia and Singapore underscore the differences in financial practices, regulatory frameworks, and strategic goals that characterize these two Southeast Asian nations.

Although both countries share certain similarities due to their geographic closeness and economic connections, their capital budgeting approaches exhibit distinct traits shaped by their unique market conditions and corporate governance systems.

In Singapore, MNCs employ advanced capital budgeting techniques that are consistent with globally accepted practices. There is a strong focus on thorough financial evaluations and strategic decision-making approaches, which results in the use of sophisticated capital budgeting methods, such as discounted cash flow (DCF) analysis and real options analysis. These techniques support the optimization of capital allocation, ensuring that investments are consistent with long-term strategic objectives (Ramzi et al., 2023).

Moreover, the incorporation of sustainability aspects into capital budgeting considerations has gained increasing significance, as MNCs frequently face stricter regulatory requirements related to corporate governance and responsible investment (Rumasukun, 2024).

In contrast, capital budgeting approaches in Malaysia are often less formalized. While there is an acknowledgment of the significance of financial management practices among Malaysian multinational corporations (MNCs), research shows that many companies do not rigorously apply comprehensive capital budgeting methods.

Factors such as limited training in financial analysis and less focus on detailed financial reporting led to a more basic approach to capital budgeting.

Malaysian firms often depend on traditional techniques, like payback period calculations, which fall short of the comprehensive insights offered by more advanced methods such as discounted cash flow (DCF) (Ramzi et al., 2023).

Additionally, though some Malaysian companies are beginning to incorporate modern financial tools, a considerable number still base their capital budgeting decisions mainly on past performance instead of future-oriented projections (Prasetya & Venusita, 2023).

Moreover, the influence of international monetary policies significantly affects capital budgeting practices in both countries.

In Singapore, multinational corporations show a higher degree of flexibility in responding to fluctuations in global interest rates and monetary conditions, allowing them to effectively manage their financing expenses and risk strategies (Rumasukun, 2024).

The degree of responsiveness among Malaysian companies is notably less, as they tend not to fully capitalize on the benefits of such policies, which in turn affects their investment decisions and capital structures.

The potential for variations in capital allocation efficiency between the two markets is clear, with Singaporean companies demonstrating a greater ability to adjust to varying financial conditions.

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The accounting systems for multinational companies functioning in Malaysia and Singapore exhibit notable distinctions, primarily stemming from differences in regulatory frameworks, the implementation of international standards, and the general environment surrounding financial reporting.

The nation has embraced complete IFRS for all publicly accountable entities, fostering a significant level of transparency and uniformity in financial reporting.

This robust framework enhances investor confidence and facilitates the attraction of international capital (Wong et al., 2021).

Singapore's comprehensive regulatory framework prioritizes corporate governance and compliance, thereby enhancing the quality and dependability of financial statements.

In contrast, Malaysia has engaged in the IFRS convergence process while still maintaining certain accounting standards that are customized to its local context.

While Malaysian companies are encouraged to adopt IFRS, there exists the Malaysian Financial Reporting Standards (MFRS) framework, which is largely aligned with IFRS but includes modifications to address local needs.

The shift to IFRS presents challenges for many multinational corporations in Malaysia, which frequently find it difficult to navigate the complexities of transitioning from local standards to IFRS (Shabri, 2023).

This inconsistency may lead to differences in financial reporting, affecting the comparability of financial statements from multinational firms operating in Malaysia and those in Singapore.

Furthermore, there are specific compliance challenges for Malaysian firms, particularly in the field of Islamic finance, where the implementation of IFRS must consider distinct elements such as Sharia compliance (Marzuki et al., 2021).

Regulatory agencies in Malaysia are striving to improve both the quality and transparency of financial reporting; nonetheless, achieving full compliance with IFRS is a complex process (Shabri, 2023).