Project Escalation and Sunk Costs: A test of the International Generalizability of Agency and Prospect Theories
- PDF / 7,310,783 Bytes
- 21 Pages / 438 x 771 pts Page_size
- 86 Downloads / 163 Views
StephenB. Salter** Universityof Cincinnati
Abstract.PreviousNorth Americanresearchsuggeststhat aspectsof agencytheoryand prospecttheorymay explaindecisionsto escalate commitmentto failingprojects.This studyexploresthe universalityof these theoriesin this context.The willingnessof NorthAmericanand Asianmanagersto escalatecommitmentto losingprojectswasmeasured using four go/no-go decision cases. We hypothesizedthat Asian managerswouldbe less willingto act in their self-interest(a lower agencyeffect),andwouldbe morewillingto escalatea decisionin the face of negativeframing(a strongerframingeffect). We foundthat agency theory had strong explanatorypowerfor projectescalation decisionsin North America,but no explanatorypowerin our Asian sample.Framingeffects were significantin both, but they were not significantlydifferent. INTRODUCTION Managers commonly face the problem of deciding whether to continue committingresourcesto a riskyandhighlyuncertainproject(to escalateit), or to abandonit aftera greatdealof corporateinvestment,andpossiblypersonal commitmentand reputation,havealreadybeen spent. Recentunauthorized speculationby financialtradersin Barings(a Britishbank in Singapore)and *DavidJ.Sharpis AssistantProfessorof Accountingat RichardIveySchoolof Business,The Universityof WesternOntario. He obtained his Ph.D. at the MassachusettsInstitute of Technology.His researchinterestsinclude cross-culturalbusinessethics and management controlsystems. **Stephen B. Salter is an Assistant Professor of Accounting in the Department of Accountingand InformationSystemsat the Universityof Cincinnati.He obtainedhis Ph.D. from the University of South Carolina. His research interests include cross-cultural differencesin managerialdecisionmaking,internationaldifferencesin financialreporting,and financialreportingin emergingmarketeconomies. We gratefully acknowledge the financial support of the CGA-Canada Research Foundation and The University of Western Ontario Plan for Excellence for this project. We thank the following colleagues for their help and comments: Nakiye Boyacigiller,JeffreyCohen, Haim Falk, Ferdinand Gul, Adrian Harrell, Andrew Lee, Barbara Sainty, Steven Salterio, Kulwant Singh, Judy Tsui, Paul Beamish (editor), and the anonymous reviewers, and participants at the Academy of International Business, Canadian Academic Accounting Association, and American Accounting Association annual meetings. A copy of the instrument is availableon request from either author. Received: October 1996; Revised: January 1997; Accepted: January 1997. 101
Palgrave Macmillan Journals is collaborating with JSTOR to digitize, preserve, and extend access to Journal of International Business Studies ® www.jstor.org
102
JOURNAL OF INTERNATIONALBUSINESSSTUDIES, FIRST QUARTER1997
Daiwa (a Japanesebank in the United States)are spectacularinternational examplesof escalationdecisionsby individualswhichcould and shouldhave beenterminatedmuchsoonerthattheyactuallywere.An understandingof the factorswhich exacerbatethis type of escalationbehavior,and whethe
Data Loading...
