Managerial Career Concerns and Project Cycle Time in Capital Budgeting

29 Pages Posted: 26 Feb 1999

See all articles by Todd T. Milbourn

Todd T. Milbourn

Washington University in Saint Louis - Olin Business School

Anjan V. Thakor

Washington University, Saint Louis - John M. Olin School of Business; European Corporate Governance Institute (ECGI)

Richard L. Shockley

Indiana University - Kelley School of Business - Department of Finance

Date Written: November 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.

JEL Classification: G3, D2, J3

Suggested Citation

Milbourn, Todd T. and Thakor, Anjan V. and Shockley, Richard L., Managerial Career Concerns and Project Cycle Time in Capital Budgeting (November 1998). Available at SSRN: https://ssrn.com/abstract=148554 or http://dx.doi.org/10.2139/ssrn.148554

Todd T. Milbourn (Contact Author)

Washington University in Saint Louis - Olin Business School ( email )

1 Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6392 (Phone)
314-935-6359 (Fax)

HOME PAGE: http://www.olin.wustl.edu/faculty/milbourn/

Anjan V. Thakor

Washington University, Saint Louis - John M. Olin School of Business ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Richard L. Shockley

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-9404 (Phone)
812-855-5875 (Fax)

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