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Sunflower Management and Capital Budgeting

Author

Listed:
  • 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.

Suggested Citation

  • Arnoud W. A. Boot & Todd T. Milbourn & Anjan V. Thakor, 2005. "Sunflower Management and Capital Budgeting," The Journal of Business, University of Chicago Press, vol. 78(2), pages 501-528, March.
    • Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:2:p:501-528
    DOI: 10.1086/427636
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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.
    3. Roman Inderst & Manuel Klein, 2007. "Innovation, endogenous overinvestment, and incentive pay," RAND Journal of Economics, RAND Corporation, vol. 38(4), pages 881-904, December.
    4. Mohamed Ali Azouzi & Anis Jarboui, 2018. "Managerial Optimism Level and Investment Decision: Decision Tree Analysis," International Journal of Social Science Studies, Redfame publishing, vol. 6(1), pages 107-123, January.
    5. Tsai, Jeng-Yan & Lin, Jyh-Horng, 2012. "A contingent claim analysis of sunflower management under board monitoring and capital regulation," International Review of Financial Analysis, Elsevier, vol. 21(C), pages 1-9.
    6. Xuelian Li & Tinghui Lu & Jyh-Horng Lin, 2022. "Bank Interest Margin and Green Lending Policy under Sunflower Management," Sustainability, MDPI, vol. 14(14), pages 1-15, July.

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