Capital budgeting practices and performance of small firm in Tanzania

This thesis investigates the capital budgeting practices of small business firms in Tanzania. During this process a general description of how capital budgeting is practiced by these fumes was carried out and the relationship between performance and capital budgeting techniques, and between performance and capital budgeting sophistication were investigated. These were posed as two main objectives of the research study. Questionnaires were distributed to small firms operating in Tanzania upon which descriptive statistical data was obtained and used to generalize die capital budgeting conduct of these firms. The results obtained showed that most of small business firms in Tanzania do not use capital budgeting techniques when making investment decisions. Furthemore, among the few firms which use these techniques payback period and accounting rate of return methods were the most used techniques. Furthemore to address the second objective, a regression analysis model was constructed in order to measure the relationships mentioned above. Basing on the theory `and empirical evidence, variables for capital budgeting techniques, capital budgeting sophistication, performance and explanatory variables were defined. Three different definitions of capital budgeting sophistication and capital budgeting techniques, ranging from simple to more complex were used in order to measure whether the choice of variables affects the findings. For the same reason three measures of performance were used. Data obtained from the questionnaire distributed to the firms and finance professionals were used to test the model. The results obtained were mostly insignifcant negative relationships.