Investment Decision Criteria In Small New Zealand Businesses

Abstract

The investment decision making process for small business is expected by the literature to focus on alternative objectives to shareholder wealth maximisation. This empirical study of 238 small businesses in New Zealand closely examines the investment decision making criteria used by small businesses. ‘Gut feel’ and accounting based methods are most used, even when adjusting for size and for external sources of capital. This supports the notion that utility is not just maximised wealth. Yet, most firms do discriminate in their investing on the basis of risk, usually by using non NPV criteria. While 69% indicate that they encounter limits to their investing due to availability of capital, they consider availability of capital as their least important constraint. This paper provides empirical support for the assertion that “there is a difference between what they ought to do... and what they actually end up doing” (Ang (1992)).

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