The effect of decision recommendations and approval expectations on directors’ decision control: an experimental investigation of anchoring effects

This paper explores the psychological bias of anchoring in the context of corporate board decision-making by examining how an initial recommendation in simulated board papers can significantly influence decisions. Using a two-stage experimental design with both student and professional directors, the study demonstrates that anchoring affects both individual and group decision-making processes, irrespective of the decision-maker’s independence and information asymmetry present in the decision. This suggests that governance practices and information presentation may be an understudied mechanism for the control of agency costs. This research provides an extended replication of anchoring in corporate governance settings and highlights the need for a more nuanced consideration of board processes and decision-making biases when aiming to reduce agency costs. Normatively, it suggests a reconsideration of “one size fits all” governance recommendations.