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Persistence in capital budgeting reinvestment decisions – personal responsibility antecedent and information asymmetry moderator: A note

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  • Axel K‐D. Schulz
  • Mandy M. Cheng

Abstract

In this study we examine the effects of personal responsibility and information asymmetry on managers’ tendencies to escalate their commitment to poorly performing investment projects. Consistent with the recommendations by critics of the escalation literature (e.g. Bowen, 1987), we provided subjects with unequivocal negative project feedback. However, counter to other recent conflicting studies adopting Bowen’s recommendations, we reverted back to Staw’s (1976) original methodology and incorporated “free‐choice” into our personal responsibility construct. Our results confirm Staw’s (1976) original proposition of a positive relation between a manager’s personal responsibility for a poorly performing project and his/her subsequent escalation of commitment to the project. Further, we proposed that information asymmetry moderates the relation between the level of personal responsibility and escalation of commitment. Our results did not confirm this proposition. As such, results from our study re‐establish personal responsibility as an important antecedent variable to escalation of commitment.

Suggested Citation

  • Axel K‐D. Schulz & Mandy M. Cheng, 2002. "Persistence in capital budgeting reinvestment decisions – personal responsibility antecedent and information asymmetry moderator: A note," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 42(1), pages 73-86, March.
    • Handle: RePEc:bla:acctfi:v:42:y:2002:i:1:p:73-86
    DOI: 10.1111/1467-629X.00004
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    Cited by:

    1. Peter A. F. Fraser‐Mackenzie & Tiejun Ma & Ming‐Chien Sung & Johnnie E. V. Johnson, 2019. "Let's Call it Quits: Break‐Even Effects in the Decision to Stop Taking Risks," Risk Analysis, John Wiley & Sons, vol. 39(7), pages 1560-1581, July.
    2. Matthias Mahlendorf, 2015. "Allowance for failure: reducing dysfunctional behavior by innovating accountability practices," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 19(3), pages 655-686, August.
    3. Duxbury, Darren, 2012. "Sunk costs and sunk benefits: A re-examination of re-investment decisions," The British Accounting Review, Elsevier, vol. 44(3), pages 144-156.
    4. Kathryn Kadous & Lisa M. Sedor, 2004. "The Efficacy of Third†Party Consultation in Preventing Managerial Escalation of Commitment: The Role of Mental Representations," Contemporary Accounting Research, John Wiley & Sons, vol. 21(1), pages 55-82, March.
    5. Clive Gaunt & Steven Cahan, 2014. "Accounting and Finance: authorship and citation trends," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 54(2), pages 441-465, June.
    6. Schulz-Hardt, Stefan & Thurow-Kröning, Birgit & Frey, Dieter, 2009. "Preference-based escalation: A new interpretation for the responsibility effect in escalating commitment and entrapment," Organizational Behavior and Human Decision Processes, Elsevier, vol. 108(2), pages 175-186, March.
    7. Negrini, Marcello & Riedl, Arno & Wibral, Matthias, 2022. "Sunk cost in investment decisions," Journal of Economic Behavior & Organization, Elsevier, vol. 200(C), pages 1105-1135.
    8. Peter Gordon Roetzel & Burkhard Pedell & Daniel Groninger, 2020. "Information load in escalation situations: combustive agent or counteractive measure?," Journal of Business Economics, Springer, vol. 90(5), pages 757-786, June.
    9. Marcello Negrini & Arno Riedl & Matthias Wibral, 2020. "Still in Search of the Sunk Cost Bias," CESifo Working Paper Series 8623, CESifo.
    10. Mandy M Cheng & Habib Mahama, 2011. "The impact of capital proposal guidelines and perceived preparer biases on reviewers’ investment evaluation decisions," Australian Journal of Management, Australian School of Business, vol. 36(3), pages 349-370, December.

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