Managerial Career Concerns and Project Cycle Time in Capital Budgeting

Finance

IFA Working Paper

1998

We study a situation in which a manager, whose ability is unknown a priori, proposes a project for funding. The manager's superior can observe the information about 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 over invest 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 organisational responses to this distortion are discussed and empirical implications drawn out.

Institute of Finance and Accounting

FIN 284

IFA Working Paper

No