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Factors affecting biasing of capital budgeting cash flow forecasts: evidence from the hotel industry

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  • Michael J. Turner
  • Chris Guilding

Abstract

This study contributes to a neglected aspect of the capital budgeting process, namely, the proposal development stage, which is primarily concerned with project cash flow estimation. Given that the deployment of sophisticated selection techniques is severely undermined when directed to input data suffering from bias, it is surprising that minimal empirical research has sought to explore for antecedent factors associated with biasing of capital budgeting cash flow forecasts. This paper reports the findings of a survey concerned with determining factors associated with biasing of capital budget cash flow forecasts in hotels that are mediated by a management contract. Statistically significant support is provided for the view that higher levels of biasing of capital budget cash flow forecasts occur in the presence of: high emphasis attached to the payback investment appraisal method; deficient reserve funds for furniture, fittings, and equipment (FF&E); low operator accessibility to reserve funds for FF&E; shorter periods of time to management contract expiry; and high emphasis attached to non-financial factors in capital budgeting appraisal.

Suggested Citation

  • Michael J. Turner & Chris Guilding, 2012. "Factors affecting biasing of capital budgeting cash flow forecasts: evidence from the hotel industry," Accounting and Business Research, Taylor & Francis Journals, vol. 42(5), pages 519-545, December.
    • Handle: RePEc:taf:acctbr:v:42:y:2012:i:5:p:519-545
    DOI: 10.1080/00014788.2012.670405
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    References listed on IDEAS

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    1. Stefan Linder, 2005. "Fifty years of Research on Accuracy of Capital Expenditure Project Estimates: A Review of the Findings and their Validity," Finance 0504023, University Library of Munich, Germany.
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    Cited by:

    1. Christian Daumoser & Bernhard Hirsch & Matthias Sohn, 2018. "Honesty in budgeting: a review of morality and control aspects in the budgetary slack literature," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 29(2), pages 115-159, August.

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