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Sunflower Management and Capital Budgeting

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  • Arnoud W. A. Boot

    (University of Amsterdam)

  • Todd T. Milbourn

    (Washington University)

  • Anjan V. Thakor

    (Washington University)

Abstract

In organizations, ideas are often delegated for evaluation as a means of efficiently aggregating multiple information signals. However, those who delegate often find it impossible to separate the evaluation of the ideas they delegate from the evaluation of abilities of those delegated the task of assessing these ideas. This commingling of the assessment of the idea with that of the individual agent generates a tendency for the agent to ignore his or her own information and instead attempt to confirm the superior's prior belief. We refer to this as sunflower management and examine its effects on capital budgeting practices.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 78 (2005)
Issue (Month): 2 (March)
Pages: 501-528

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Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:2:p:501-528

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Web page: http://www.journals.uchicago.edu/JB/

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  1. Bernardo, Antonio E. & Cai, Hongbin & Luo, Jiang, 2001. "Capital budgeting and compensation with asymmetric information and moral hazard," Journal of Financial Economics, Elsevier, vol. 61(3), pages 311-344, September.
  2. Prendergast, Canice & Stole, Lars, 1996. "Impetuous Youngsters and Jaded Old-Timers: Acquiring a Reputation for Learning," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1105-34, December.
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Cited by:
  1. Mariano, Beatriz, 2012. "Market power and reputational concerns in the ratings industry," Journal of Banking & Finance, Elsevier, vol. 36(6), pages 1616-1626.
  2. Bernardo, Antonio E. & Luo, Jiang & Wang, James J.D., 2006. "A theory of socialistic internal capital markets," Journal of Financial Economics, Elsevier, vol. 80(3), pages 485-509, June.

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