PERCEIVED ENVIRONMENTAL UNCERTAINTY

Posted by Kathryn Schwartz on January 20, 2014
Risk Analysis

UNCERTAINTYPurpose

The purpose of this research is to empirically examine the influence of perceived environmental uncertainty and perceived company performance on the extent of use of risk analysis techniques in strategic investment decisions. Bank-customer

Design/Methodology/Approach

This study has developed and tested a structural model linking perceived environmental uncertainty and perceived company performance and the extent of use of risk analysis techniques using Partial Least Square -Path Modelling method. The primary data has been collected from Senior Finance Professionals representing 36 automotive companies operating in India through a single cross-sectional mailed survey.

Findings

This study found that higher the perceived environmental uncertainty and perceived company performance, higher the level of use of risk analysis techniques in strategic investment decisions.

Practical Implications

This study found that the extent of use of risk analysis techniques purely depends on how accurate and precise the DMs’ perceptions on the environment and company performance are. If they ignored, it doesn’t not only affect the degree of rationality of a decision, then the resulting irrationality affects not only the particular projects, but also the company as a whole. Thus, in order to ensure wealth maximising decision making, it is necessary to adjust the analysis to account for the varying degrees of risk of a project, which increases the use of risk analysis techniques.

Originality/Value

This study adds value to existing capital budgeting literature in Indian context. The study focuses how an increasing complexity of the business environment of automotive companies operating in India has prompted increasing interest in risk analysis in SIDs in order to maintain the competitive position.

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