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Sunflower Management and Capital Budgeting

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Author Info

  • Arnoud W.A. Boot

    ()
    (University of Amsterdam)

  • Todd T. Milbourn

    ()
    (Washington University in St Louis)

  • Anjan V. Thakor

    ()
    (University of Michigan Business School)

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. This discussion paper has resulted in a publication in the Journal of Business , 2005, 78(2), 501-27.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 02-059/2.

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Date of creation: 21 Jun 2002
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Handle: RePEc:dgr:uvatin:20020059

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Web page: http://www.tinbergen.nl

Related research

Keywords: management science; capital investments; budget; capital budget;

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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, 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, University of Chicago Press, vol. 104(6), pages 1105-34, December.
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Cited by:
  1. Bernardo, Antonio E. & Luo, Jiang & Wang, James J.D., 2006. "A theory of socialistic internal capital markets," Journal of Financial Economics, Elsevier, Elsevier, vol. 80(3), pages 485-509, June.
  2. Mariano, Beatriz, 2012. "Market power and reputational concerns in the ratings industry," Journal of Banking & Finance, Elsevier, Elsevier, vol. 36(6), pages 1616-1626.

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