Financial Management Practices in India

Abstract

It is not too uncommon to note practice differs from theory. As theory is constructed based on a framework of 'ideal conditions', its application in real - not so ideal - conditions is definitely a challenge. However unreal the theoretical conditions look, they are necessary to understand things better and deeper. Executives make modifications in models and theorists absorb those modifications in coming out with newer - may be more practical - models. There were complaints by executives and there were corrections by theorists. New theories/models/concepts kept coming in. The current survey is an attempt to assess the gap between theory and practice. The results of this survey are very much in line with the propositions of theory. It is also important to note that corporate Indian is fast catching the new methodologies. While 40 percent of the respondents considered EVA as the goal of the firm, 44 percent are using CAPM to estimate the cost of equity. However 44 percent still preferring Pay Back Period as the project selection tool.

Keywords: Financial Management, Practice, Theory, Capital Budgeting, Capital Structure, Dividends, Goal of the firm, India

JEL Classification: G00, G30, G31, G32