Impact of Framed Information and Project Importance on Capital Budgeting Decisions

Abstract

Capital budgeting projects fail about as often as they succeed. Recent research shows that accountants may frame information related to capital budgeting projects to be consistent with their preference for the project (e.g., accept or reject), perhaps in order to persuade management to agree with them. Psychology research consistently shows that framed information results in systematic differences in judgments. The purpose of this study is to examine whether framed information affects capital budgeting decisions, and to examine whether this effect is moderated by the importance of the potential project. Results from an experimental case completed by 173 participants indicate attribute frames affect capital budgeting decisions, however, the effect is moderated by the importance of the decision.

Citation

Kerler, W.A., Allport, C.D. and Fleming, A.S. (2012), "Impact of Framed Information and Project Importance on Capital Budgeting Decisions", Epstein, M.J. and Lee, J.Y. (Ed.) Advances in Management Accounting (Advances in Management Accounting, Vol. 21), Emerald Group Publishing Limited, Leeds, pp. 1-24. https://doi.org/10.1108/S1474-7871(2012)0000021006