The Impact of Capital Proposal Guidelines and Perceived Preparer Biases on Reviewers’ Investment Evaluation Decisions

Posted: 13 Jan 2012  

Mandy M. Cheng

UNSW Australia Business School, School of Accounting

Habib Mahama

United Arab Emirates University - College of Business and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: December 21, 2011

Abstract

Past literature has highlighted the importance of using reviewers in the evaluation of investment proposals. This study examines whether and how the decisions of these reviewers are influenced by a proposal’s conformance with company guidelines and practices, and the incentives facing the proposal preparer. Our experiment shows that, holding the proposal’s content constant, the reviewers’ evaluation decision is less favorable if the proposal does not follow the company guidelines. Further, we find that the preparer’s incentive to persist in a project negatively affects the proposal reviewers’ decisions only when the proposal deviates from company guidelines but not when it is compliant. This result suggests that company guidelines may lower the willingness of reviewers to make independent decisions.

Keywords: capital budgeting proposals, capital investment evaluation decisions, preparer biases, rule compliance

Suggested Citation

Cheng, Mandy M. and Mahama, Habib, The Impact of Capital Proposal Guidelines and Perceived Preparer Biases on Reviewers’ Investment Evaluation Decisions (December 21, 2011). Australian Journal of Management, Vol. 36, No. 3, 2011. Available at SSRN: https://ssrn.com/abstract=1983844

Mandy M. Cheng (Contact Author)

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia
(612) 9385.6343 (Phone)

Habib Mahama

United Arab Emirates University - College of Business and Economics ( email )

P.O. Box 15551
Al-Ain
United Arab Emirates

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