(WP 07/04 Clave pdf) According to economic theory, under-performing firms should be selected out of the market. However, research shows that these firms persist, often for long periods of time. In this article we explore the non-firm-performance factors that contribute to the decision to persist with an under-performing firm. Using the escalation of commitment literature we identify seven variables that are associated with the persistence decision. We reconcile the economic and psychological views by finding that the extent to which some of these non-firm-performance factors influence the persistence decision is, in part, dependent upon the owner-managers’ level of extrinsic motivation.
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Paper provided by Instituto de Empresa, Area of Economic Environment in its series Working Papers Economia with number
wp04-07.