Time to Exit: Rational, Behavioral, and Organizational Delays

Elfenbein, DW, Knott AM. Time to Exit: Rational, Behavioral, and Organizational Delay. Strategic Management Journal, Forthcoming.

41 Pages Posted: 17 Jul 2010 Last revised: 16 Mar 2015

See all articles by Daniel W. Elfenbein

Daniel W. Elfenbein

Washington University in St. Louis - John M. Olin Business School

Anne Marie Knott

Washington University in St. Louis - John M. Olin Business School

Date Written: March 7, 2014

Abstract

Existing studies of exit delay typically focus on rational, behavioral, or organizational explanations in isolation. We integrate these different theoretical explanations, developing testable hypotheses for each, and examine them using the population of US banks between 1984 and 1997. Banks’ exit behavior is not consistent with theories emphasizing the option value of avoiding re-entry costs; however, patterns of exit do support models of rational delay under ability uncertainty. Controlling for this source of rational delay, we find evidence of delay due to behavioral bias – firms discount negative signals of profitability relative to positive signals – and organizational considerations – delay increases with the separation of ownership and control. These results demonstrate that all three sets of theories are necessary to describe exit behavior.

Keywords: exit, failure, banking, option value, behavioral bias, escalation of commitment

JEL Classification: D21, D81

Suggested Citation

Elfenbein, Daniel W. and Knott, Anne Marie, Time to Exit: Rational, Behavioral, and Organizational Delays (March 7, 2014). Elfenbein, DW, Knott AM. Time to Exit: Rational, Behavioral, and Organizational Delay. Strategic Management Journal, Forthcoming.. Available at SSRN: https://ssrn.com/abstract=1641242 or http://dx.doi.org/10.2139/ssrn.1641242

Daniel W. Elfenbein

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1156
St. Louis, MO 63130-4899
United States

HOME PAGE: http://www.elfenbein.net

Anne Marie Knott (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1156
St. Louis, MO 63130-4899
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
245
Abstract Views
1,452
rank
127,516
PlumX Metrics