The Fallacy of 'Only the Strong Survive': The Effects of Extrinsic Motivation on the Persistence Decisions of Underperforming Firms
28 Pages Posted: 7 Oct 2007
Date Written: March 27, 2004
Abstract
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: Personal sunk costs, personal opportunities, previous organizational success, perceived collective efficacy, environmental complexity, dynamism and munificence. 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.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Experimental Research in Financial Accounting
By Robert Libby, Robert J. Bloomfield, ...
-
Comprehensive Income Disclosures and Analysts' Valuation Judgments
By D. Eric Hirst and Patrick E. Hopkins
-
Fair Values, Comprehensive Income Reporting, and Bank Analysts' Risk and Valuation Judgments
By D. Eric Hirst, Patrick E. Hopkins, ...
-
Purchase, Pooling, and Equity Analysts' Valuation Judgments
By Patrick E. Hopkins, Richard W. Houston, ...
-
Directional Preferences, Information Processing, and Investors' Forecasts of Earnings
-
The 'Incomplete Revelation Hypothesis' and Financial Reporting
-
Using Psychology Theories in Archival Financial Accounting Research
By Lisa Koonce and Molly Mercer
-
Cheap Talk, Fraud and Adverse Selection in Financial Markets: Some Experimental Evidence
By Robert Forsythe, Russell J. Lundholm, ...