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Title: An investigation into uncertainty and the capital investment decisions of manufacturing firms in South Africa
Author: Gilbert, E. S.
Awarding Body: University of Cambridge
Current Institution: University of Cambridge
Date of Award: 2000
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This thesis analyses the problem of decision making under uncertainty in the context of capital investment decisions by manufacturing firms in South Africa. These decisions significantly affect the continued success of both the firm and the economy in which they operate. An understanding of the processes underlying these decisions is thus vital both for the firms' decision makers and for public policy makers aiming to affect these decisions. The neo-classical theory of investment at both the macro and microeconomic levels is considered. It is shown that this approach suffers from both theoretical and empirical problems. The macroeconomic version of the theory lacks predictive power. Past surveys of the use of the evaluation techniques by firms are shown to indicate significant deviations from the prescriptions of the microeconomic version of the theory. The fieldwork reported consisted of a postal survey of the use of evaluation techniques by South African manufacturing firms and case studies of three investment decisions by manufacturing firms. The results of the survey were supportive of the existing survey evidence. Discounted Cash Flow (DCF) techniques do not form the sole basis for the making of these decisions as assumed by neoclassical theory. The case studies indicate that uncertainty plays a large role in these decisions and that, for the major part, these decisions are made on qualitative (strategic) and not quantitative grounds. DCF techniques are used but do not play a decisive role. The analysis develops an explanation for the observed behaviour, based on a critical examination of the treatment of uncertainty by neo-classical theory, the risk-based approach of which is shown to be valid only in a very limited range of circumstances. An alternative, paradigmatic approach, emphasises the problems posed for decision-makers of perception and learning by cognitively limited individuals acting within an evolving environment.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available