Biases in Financial Resource Allocation to Subsidiary Projects: The Role of Psychic Distance

Jelena Cerar, Phillip C. Nell, Benoit Decreton

Publication: Chapter in book/Conference proceedingContribution to conference proceedings


This paper investigates biases of senior managers in the financial resource allocation process. In particular, we analyze the role that perceived psychic distance plays in headquarters (HQ) managers’ decisions to fund entrepreneurial initiatives stemming from their subsidiaries. We used an experimental vignette approach with 109 managers from 35 countries. We find that psychic distance to a subsidiary country is negatively related to resource allocation of HQ managers only when proposals were submitted by expatriates. A potential explanation is that expatriates are perceived to lack relevant contextual knowledge for such initiatives to be valuable. This result is particularly striking because the payoff functions of our experimental design were clearly not dependent on these characteristics. We contribute to the literature on psychic distance, biases and resource allocation within multinational corporations (MNCs)."
Original languageEnglish
Title of host publicationAcademy of Management Annual Meeting Proceedings 2020
Editors Academy of Management
Place of PublicationCanada
PublisherAcademy of Management
Number of pages17435
Publication statusPublished - 2020

Publication series

SeriesAcademy of Management Proceedings

Austrian Classification of Fields of Science and Technology (ÖFOS)

  • 509018 Knowledge management
  • 505027 Administrative studies
  • 502052 Business administration
  • 506009 Organisation theory
  • 502044 Business management
  • 507026 Economic geography

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