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

See all articles by Dawn R. DeTienne

Dawn R. DeTienne

Colorado State University, Fort Collins - College of Business; Utah State University

Dean Shepherd

University of Colorado at Boulder - Department of Management

Julio O. de Castro

Instituto de Empresa Business School

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

DeTienne, Dawn R. and Shepherd, Dean and de Castro, Julio O., The Fallacy of 'Only the Strong Survive': The Effects of Extrinsic Motivation on the Persistence Decisions of Underperforming Firms (March 27, 2004). Instituto de Empresa Business School Working Paper No. WP07-04, Available at SSRN: https://ssrn.com/abstract=1019603 or http://dx.doi.org/10.2139/ssrn.1019603

Dawn R. DeTienne

Colorado State University, Fort Collins - College of Business ( email )

Fort Collins, CO 80523
United States

Utah State University

Logan, UT 84322
United States

Dean Shepherd

University of Colorado at Boulder - Department of Management ( email )

Boulder, CO 80309-0419
United States
303-492-5962 (Fax)

Julio O. De Castro (Contact Author)

Instituto de Empresa Business School ( email )

Serrano 99
Madrid, 28006
Spain

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