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The effect of information transparency on capital budgeting with privately informed agents: a short research note

Author

Listed:
  • Anthony D. Nikias

    (Farmingdale State College)

  • Steven T. Schwartz

    (Binghamton University)

  • Richard A. Young

    (The Ohio State University)

Abstract

This paper reports on an experiment designed to examine the effects of information transparency in a multi-agent capital budgeting setting. Two subordinates with private information regarding their own project costs submit budget requests to a superior who observes both requests before deciding which projects to fund. In the high transparency (low transparency) treatment, subordinates observe (do not observe) each other’s costs. We find that in the high transparency treatment, subordinates’ requests increase when the other subordinate’s cost is known. Further, subordinates submit significantly higher budget requests on average in the high transparency treatment. In response, superiors are more likely to reject budgets in the high transparency treatment, reducing efficiency. These results suggest that while information sharing may improve decision making in many settings, it may also come at a cost when privately informed subordinates have access to information on other subordinates’ projects.

Suggested Citation

  • Anthony D. Nikias & Steven T. Schwartz & Richard A. Young, 2021. "The effect of information transparency on capital budgeting with privately informed agents: a short research note," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 32(2), pages 253-268, June.
    • Handle: RePEc:spr:jmgtco:v:32:y:2021:i:2:d:10.1007_s00187-020-00311-2
    DOI: 10.1007/s00187-020-00311-2
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    References listed on IDEAS

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    More about this item

    Keywords

    Capital budgeting; Multi-agent; Information asymmetry; Internal control;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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