It is generally recognized that decisions about capital projects should be made by independent reviewers who select the economically strongest projects. However, prior research finds that reviewers’ choices can be biased by their affective reactions to a manager proposing a capital project. Potentially, this bias could be reduced by holding reviewers more accountable. We contend that holding reviewers accountable will lessen the effect of positive, but not negative, affective reactions on capital project choice. To provide evidence on our predictions, we conduct an experiment using highly experienced participants. Participants’ task is to select between two capital projects, each proposed by a different manager. Although one project is economically preferred relative to the other project, we manipulate whether there is a negative affective reaction to the manager proposing the preferred project or a positive affective reaction to the manager proposing the non-preferred project. We also manipulate the presence versus absence of reviewer accountability. As expected, participants were more likely to select the economically non-preferred project when proposed by a manager triggering a positive affective reaction, but this tendency was reduced by accountability. Also, as expected, participants were less likely to select the economically preferred project when proposed by a manager triggering a negative affective reaction, and accountability did not reduce this tendency. Implications of our findings for theory and practice are discussed.
- Capital budgeting
ASJC Scopus subject areas
- Information Systems and Management