Managerial Career Concerns and Project Cycle Time in Capital Budgeting

Authors

Todd T. Milbourn, Southern Methodist University (SMU) - SMU Cox School of BusinessFollow
Anjan V. Thakor, Washington University in St. Louis - John M. Olin Business School; Financial Theory Group; European Corporate Governance Institute (ECGI); Massachusetts Institute of Technology (MIT) - Laboratory for Financial EngineeringFollow
Richard L. Shockley, Indiana University - Kelley School of Business - Department of FinanceFollow

Publication Date

11-1-1998

Abstract

We study a situation in which a manager, whose ability to select good projects is unknown a priori, proposes a project for funding. The manager's superior can observe the information about project quality generated by the manager, but cannot observe the resources devoted by the manager to generate that information. We show that a reputation-conscious manager will overinvest in information about the project, relative what the firm's shareholders would like, and that this leads to an excessively long product-development cycle time. Possible organizational responses to this distortion are discussed and empirical implications drawn out.

Document Type

Article

Disciplines

Finance

DOI

10.2139/ssrn.148554

Source

SMU Cox: Finance (Topic)

Language

English