The use of investment decision techniques and tools in practice in a frontier market: Evidence from Ghana

We apply a survey approach to investigate investment decision techniques and tools in practice among listed firms in Ghana. We find that chief financial officers (CFOs) consider the payback period the most used capital budgeting tool, which is not in line with current literature trends. For the cost of equity, the results indicate that there is low or no effort by CFOs in estimating it when calculating the cost of capital. This implies CFOs may be using the cost of debt as the cost of capital. This article provides the improvement opportunities that may support firm value maximisation in a frontier market.

Automated summary

This study investigates the investment decision techniques and tools used in practice by listed firms in Ghana. The findings reveal that chief financial officers (CFOs) primarily rely on the payback period as their most used capital budgeting tool, which contrasts with current literature trends. Additionally, the study indicates that CFOs put low or no effort into estimating the cost of equity when calculating the cost of capital, suggesting they may be using the cost of debt instead. This article provides valuable insights for improving firm value maximization in a frontier market.