Perceptions of capital budgeting and political risk among small- and medium-sized enterprises: evidence from Lebanon

Purpose This paper aims to investigate the investment appraisal process of small- and medium-sized enterprises (SMEs) in Lebanon and examine how political risk and Islamic finance considerations impact the capital budgeting (CB) process. Design/methodology/approach This paper conducts semi-structured interviews with senior executives of Lebanese SMEs to investigate their CB practices. Findings The results indicate that Lebanese SMEs place more emphasis on non-financial factors, such as political priorities and personal experience, than financial factors when analysing potential projects. Lebanese companies also use more than one method of investment appraisal, with payback being the most popular technique. Most interviewees indicated that their companies had experienced capital rationing and that it tended to be imposed externally. Political risk was consistently cited as a key determinant of project evaluation methods, while some respondents also acknowledged informal alignment with Islamic finance principles. Originality/value This paper contributes to the literature by examining whether capital investment appraisal techniques used in advanced Western economies are applicable in an emerging Middle Eastern context. It advances the understanding of how political risk and institutional fragility reshape CB behaviour among SMEs. The study also offers early evidence on how Islamic finance norms may inform investment decisions even in secular or mixed financial environments. Overall, it highlights the need for context-sensitive adaptations to conventional CB frameworks in high-risk, culturally embedded business environments.