The Effect of Managerial Bias on Employees' Specific Human Capital Investments

24 Pages Posted: 17 Nov 2012

See all articles by Heli C. Wang

Heli C. Wang

Hong Kong University of Science & Technology (HKUST) - Department of Management & Organization

Kin Fai Ellick Wong

affiliation not provided to SSRN

Date Written: December 2012

Abstract

Contrary to the conventional belief that escalation of commitment by managers is detrimental, this study argues for its potential benefits. While firm‐specific human capital is considered a critical element of knowledge‐based resources that have the potential for superior firm performance, factors affecting the incentives for employees to make such investments are often overlooked. In the case of firms taking on risky projects, fear of project termination often reduces employees' incentives to make specific human capital investments. We argue that in this situation, the firms may find it desirable to commit to a lower probability of project termination in order to encourage the development of specific human capital by employees. Managers' escalation of commitment tendency may function as such a commitment mechanism. We find support for the key argument from the results of two experimental studies.

Keywords: escalation of commitment, firm specific knowledge, human capital, investment

Suggested Citation

Wang, Heli and Wong, Kin Fai Ellick, The Effect of Managerial Bias on Employees' Specific Human Capital Investments (December 2012). Journal of Management Studies, Vol. 49, Issue 8, pp. 1435-1458, 2012, Available at SSRN: https://ssrn.com/abstract=2177109 or http://dx.doi.org/10.1111/j.1467-6486.2012.01053.x

Heli Wang (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Management & Organization ( email )

Clear Water Bay, Kowloon
Hong Kong

Kin Fai Ellick Wong

affiliation not provided to SSRN

No Address Available

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