Persistence in Capital Budgeting Reinvestment Decisions - Personal Responsibility Antecedent and Information Asymmetry Moderator: A Note

14 Pages Posted: 23 Dec 2002

See all articles by Mandy M. Cheng

Mandy M. Cheng

UNSW Australia Business School, School of Accounting

Axel K-D Schulz

La Trobe University

Abstract

In this study we examine the effects of personal responsibility and information asymmetry on managers' tendencies to escalate their commitment to poorly performing investment projects. Consistent with the recommendations by critics of the escalation literature (e.g. Bowen, 1987), we provided subjects with unequivocal negative project feedback. However, counter to other recent conflicting studies adopting Bowen's recommendations, we reverted back to Staw's (1976) original methodology and incorporated "free-choice" into our personal responsibility construct. Our results confirm Staw's (1976) original proposition of a positive relation between a manager's personal responsibility for a poorly performing project and his/her subsequent escalation of commitment to the project. Further, we proposed that information asymmetry moderates the relation between the level of personal responsibility and escalation of commitment. Our results did not confirm this proposition. As such, results from our study re-establish personal responsibility as an important antecedent variable to escalation of commitment.

JEL Classification: D82, G31, M40, M46

Suggested Citation

Cheng, Mandy M. and Schulz, Axel K-D, Persistence in Capital Budgeting Reinvestment Decisions - Personal Responsibility Antecedent and Information Asymmetry Moderator: A Note. Accounting and Finance, Vol. 42, pp. 73-86, 2002. Available at SSRN: https://ssrn.com/abstract=318595

Mandy M. Cheng

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia
(612) 9385.6343 (Phone)

Axel K-D Schulz (Contact Author)

La Trobe University ( email )

Victoria 3552, 3086
Australia

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