Capital budgeting evaluation practices of building contractors in Hong Kong

This paper reports the results of an investigation into capital budgeting evaluation practices in the construction industry of Hong Kong. The aim of this study was to identify the popularity and extent of usage of various techniques for capital budget evaluation, investment appraisal, risk analysis, and management science. The current study was compared with a similar survey conducted in 1994 to establish the changes in the capital budgeting evaluation practices of contracting firms over time. The results indicate that there was a general increase in the popularity and extent of usage in certain capital budget evaluation techniques such as “best/worst estimate” and “formal financial evaluation”. In addition, the evaluation techniques examined were fitted into a discriminant function analysis (DFA), and a model has been developed which allows contracting firms to be classified accordingto their predominant characteristics in capital budget evaluation.