What's in a Name? How Senior Managers use Name‐Based Heuristics to Allocate Financial Resources in Multinational Corporations

Abstract

AbstractThe allocation of financial resources to entrepreneurial initiatives in subsidiaries of multinational corporations is crucial to their realization. When allocating resources to these initiatives, senior headquarters managers face uncertainty that they attempt to address using various heuristics, which may bias allocation. Name‐based heuristics – cognitive shortcuts based on names associated with a decision‐making situation – have been shown to influence financial decisions ranging from food purchase to stock investment. Yet little is known about name‐based heuristics in the allocation of financial resources to entrepreneurial initiatives. We analyse 1308 resource allocation decisions made by 109 senior managers in an experiment in which we vary subsidiary country and subsidiary manager names. We find that psychic distance to the subsidiary country is negatively related to resource allocation when subsidiary managers' names express a potential expatriate status. In contrast, this relationship is positive when subsidiary managers' names express a potential local status. We contextualize our results by interviewing senior managers and discuss how reliance on name‐based heuristics to infer the context of an initiative or the interests and competences of subsidiary managers can lead to biased decisions.