Firm investment decisions

Isaac Ofoeda, James Ntiamoah Doku and Sydney O. Vanderpuye

Chapter 5 in The Elgar Companion to Financial Economics, 2025, pp 92-113 from Edward Elgar Publishing

Abstract: Organisations’ investment decisions include significant expenditures, necessitating critical and rigorous consideration to reach a sound decision rule for accepting or rejecting any investment project. This chapter attempts to raise awareness of a firm's investment decisions and contribute to information sharing. In that regard, the relationship between a firm's investment decisions and owners’ wealth maximisation is explored. Given that managers’ primary goal is to maximise shareholders’ wealth, any firm's investment decisions must be aligned with maximising shareholders’ wealth. Also, investment projects are classified based on their useful economic life, risk, and dependency on other projects. These classifications enable firms to make appropriate investment decisions to achieve efficient allocation of resources and maximise value. To ensure sound investment decision-making, firms constantly apply appropriate analytical investment tools that range from simple to advanced approaches. These tools have been empirically tested and used by managers in an environment of imperfect information.

Keywords: Firm; Investment decision; Capital budgeting (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035341399
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