Reflective and cognitive perspectives on international capital budgeting

Abstract

Purpose The purpose of this paper is to develop a framework for an enlightened management and governance praxis against a backdrop of cognitive and motivational biases promoting a reflected international capital budgeting decision process. Furthermore, societally relevant questions are raised whether these biases might have an effect on various stakeholders in public–private partnerships. Recurring failures of international business investments motivate reflective, cognitive and socio-constructivist perspectives on the international capital budgeting process. Design/methodology/approach Based on an interdisciplinary literature review and substantiated by empirical studies, the cognitive biases and flaws of the international capital budgeting process are discussed making use of a five-stage process scheme. The article applies the interpretative paradigm and regards the international capital budgeting process stages as a socio-political process of reality construction and critically assesses the motives of its actors. Consequently, the authors develop and discuss three principle-based behavioural rationalisation factors. Findings International capital budgeting is not a process of rational choice but of social construction of reality. Reflective prudence, critical communication and independence are three rationalisation factors which could, if applied along the five stages of the international capital budgeting process, systematically lead to de-biasing and thus enhance the performative praxis of international investment decisions. Research limitations/implications The international capital budgeting process deals with the construction of future scenarios under uncertainty and assessment of potential success and failure of future projects. The defined (or any other) rationalisation factors are subject to cultural biases and can naturally not guarantee successful investment projects. Although the success of the application of various de-biasing tactics was empirically confirmed, the aggregated rationalisation factors of the paper have not been tested. Practical implications The paper is aimed at enhancing the reflective understanding and the performative praxis of the international capital budgeting process. The practical recommendations aggregated in the rationalisation factors are explicitly elaborated for international business practitioners. Social implications Societally relevant questions are raised whether systematic biases have an effect on various stakeholders in international public–private partnerships. Especially in large investment projects, where capturing private value might be boosted by actively exploiting biases of the public decision makers, active stakeholder engagement could enhance the social and ecological value of investments. Originality/value The article provides a rare interdisciplinary literature review on cognitive biases in the international capital budgeting process. It critically reflects the social construction of it various stages and its social repercussions and develops practical rationalisation factors for an enhancement of the international capital budgeting process as a performative praxis.