Anil Arya () (Ohio State University, Fisher College of Business) Hans Frimor () (University of Southern Denmark, Faculty of Social Sciences, Department of Accounting and Finance) Brian Mittendorf () (Yale University, School of Management)
Abstract
common explanation for why firms incur sunk costs is that technology considerations make them inescapable. This paper shows that sometimes firms may prefer to make early (less informed) investment decisions even when technology allows such decisions to be delayed. Sunk costs commit and clarify a firm's future course of action to prospective employees, thereby providing them with incentives to acquire firm-specific human capital. This benefit of sunk costs may also provide justification for offering employee signing bonuses.
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