Abstract
This thesis explores the capital budgeting practices of Chinese companies. Specifically, this thesis addresses four key questions related to: (1) How are capital investments appraised in China?; (2) Is risk incorporated into this process by Chinese companies?; (3) Do Chinese companies experience capital rationing and, if so, is it imposed internally or externally?; (4) How are AMT investments appraised? This research adopts an interpretive method to explore these four questions, and the findings are obtained through the use of a questionnaire survey, semi-structured interviews, and a case study. In particular, 112 questionnaires were answered by Chinese executives and operational managers across three economic sectors (construction, manufacturing, and services); 15 Chinese executives responsible for the capital budgeting process within their companies were invited to participate in semi-structured interviews; and a pharmaceutical company that planned to invest one billion Chinese yuan to build a new production base was invited as the target for a case study.The findings of this research indicate that both financial and non-financial factors, such as profitability, the cost of capital, the duration of the project, employee ability, and policy support, are considered to be significant by decision-makers when they plan to invest in a project. This research also reveals that although the payback (PB) method is widely utilised by Chinese executives and operational managers, they tend to prefer discounted cash flow (DCF) methods to evaluate investments. The findings also indicate that the choice of appraisal techniques is impacted by various factors, such as position, educational experience, work experience, and company size. In addition, the findings reveal that scenario analysis, sensitivity analysis, and the rule of thumb are usually employed by Chinese companies to examine investment risk. Most Chinese companies employ the weighted average cost of capital (WACC) as the discount rate in capital budgeting. In terms of capital rationing, the findings indicate that most Chinese companies experience both internal and external capital rationing, and it is usually caused by factors such as internal regulation and contractual constraints by external investors. The findings also show that most Chinese companies believe that the Chinese stock market can help companies alleviate capital rationing. Relating to XVI investment in advanced manufacturing technology (AMT), the findings indicated that PB, NPV, and IRR are popular methods in Chinese companies to appraise AMT investments, while scenario analysis and the rule of thumb are usually adopted to measure investment risk.
A key finding that emerged from this study relates to the capital budgeting process. Theoretically, companies adopt four stages in their capital budgeting process, including (1) searching for, and screening, new investment ideas, (2) investigating the feasibility of a project, (3) evaluating projects, and (4) budgetary control. Post-audits are usually ignored by Chinese companies because they are expensive. The case study indicated that the decision-making power for investment is frequently governed by the owner rather than the management in Chinese small- and medium-sized enterprises (SMEs). Therefore, the success of investment project depends mainly on the owner’s ability.
| Date of Award | 2025 |
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| Original language | English |
| Awarding Institution |
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| Supervisor | Suzanne Fifield (Supervisor) & Justin Hof (Supervisor) |