Determinants of Choice of Appraisal Methods for Investment Appraisal by Firms in Ghana: A Study of Selected Firms, In Kumasi.
- February 17, 2022
- Posted by: rsispostadmin
- Categories: IJRISS, Social Science
International Journal of Research and Innovation in Social Science (IJRISS) | Volume VI, Issue I, January 2022 | ISSN 2454–6186
Boachie Danquah
School of Business, Valley View University, Ghana
ABSTRACT
The purpose of the study was to examine determinants of choice of appraisal methods for investment appraisal by firms in Ghana using some selected firms in Kumasi. The study specifically sought to determine whether investment decisions are appraised and determine the reason for the choice of a particular method of appraisal. The study adopted a quantitative approach using a descriptive survey design, focusing on ten (10) selected companies in the Ashanti region of Ghana. The target population for the research comprised all employees of the finance departments of ten (10) selected companies in the region. A sample size of fifty (50) respondents, representing over 10% of the total population was used. Purposive and random sampling techniques were used to select these fifty (50) respondents from the companies of the population. The study showed that indeed investments decisions are appraised in Ghanaian companies. This was confirmed by 40 respondents representing 80% of the sampled population. The study further revealed that, Viability and Profitability of any Investment Project was the most popular reason for choosing a particular type of appraisal method. This was evidenced in the overwhelming confirmation it received as a viable reason for picking an appraisal method.
Keywords: Appraisal Methods, Investment Appraisal, Ghana
Introduction
With the continuous improvement of the global securities market, the market competition is unprecedented activity. In the aspect of investment appraisal decision support system, there is an urgent need to continuously absorb new information strategies and improve the scientific and standardization of decision-making, so as to achieve the goal of improving investment decisions and appraisal efficiency in order to stabilize investment returns. Businesses thrive on making the right investments decisions that involve current outlays of money in return for a stream of benefits in future years. This means that, firms’ expenditures are made in an anticipation of realizing future benefits. According to Baird, Su, Tung (2021), investment decisions may be defined as the firm’s decisions to invest its current funds most efficiently in the long-term assets in anticipation of an expected flow of benefits over a series of years. The long-term assets are those that affect the firm’s operations beyond the one-year period. The firm’s investment decisions would generally include expansion, acquisition, modernization and replacement of the long-term assets. Sale of a division or business (Divestiture) is also as an investment decision.
An investment decision often requires a significant period elapsing between the outlay
and the recoupment of the investment. Investment decisions also require the commitment of significant amounts of company funds making it a major decision fora company to make. In making such a decision, companies often appraise the viabilities and the potential profitability of each of the types of investments using various appraisal methods. In Ghana, choice of appraisal methods often adopted by companies is dependent on certain determinants which are considered key to the accounting objectives of the companies. In the quest to achieve accounting objectives based on the above-stated determinants, many companies have adopted bad and unrealistic appraisal methods which have tended to fail. Although arguable, many cases could be made of the erstwhile Bank for Housing and Construction and Piram Limited. A failure in appraisal methods could prove disastrous to almost any company.
