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OSA Seminar by Markus Brunner

Sabotage in Capital Budgeting: The Effects of Control and Honesty on Investment Decisions

2017.12.20 | Merete Elmann

Date Fri 19 Jan
Time 14:00 15:00
Location Room 2628-M211, Department of Management, Aarhus BSS, Aarhus University

 

Friday, 19 January 2018 at 14:00 in room 2628-M211, Dr. Markus Brunner from TUM School of Management will give a seminar entitled

Sabotage in Capital Budgeting: The Effects of Control and Honesty on Investment Decisions

 

Everyone is welcome!

 

Abstract
This study investigates the sabotage of investments in response to hurdle contracts as a means of formal control in capital budgeting. We conduct a laboratory experiment to examine factors that drive or inhibit sabotage. Sabotage occurs when the manager provides false information to prevent the firm from realizing a profitable investment, which is costly both for the manager and the firm. Our results show that managers sabotage investments to reciprocate for distrustful formal control. Conversely, budget communication that requires factual assertions and thus activates managers' preference for honesty inhibits sabotage. Moreover, honesty suppresses negative reciprocity and thus reduces sabotage not only directly but also indirectly. Our findings warn firms to consider the sabotage of investments as a hidden cost of control in budgeting. They show that honesty has a spill-over effect, as it absorbs negative reciprocity.

 

 

 

 

 

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