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Project Escalation and Sunk Costs: A test of the International Generalizability of Agency and Prospect Theories

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  • David J Sharp

    (The University of Western Ontario)

  • Stephen B Salter

    (University of Cincinnati)

Abstract

Previous North American research suggests that aspects of agency theory and prospect theory may explain decisions to escalate commitment to failing projects. This study explores the universality of these theories in this context. The willingness of North American and Asian managers to escalate commitment to losing projects was measured using four go/no-go decision cases. We hypothesized that Asian managers would be less willing to act in their self-interest (a lower agency effect), and would be more willing to escalate a decision in the face of negative framing (a stronger framing effect). We found that agency theory had strong explanatory power for project in our Asian sample. Framing effects were significant in both, but they were not significantly different.© 1997 JIBS. Journal of International Business Studies (1997) 28, 101–121

Suggested Citation

  • David J Sharp & Stephen B Salter, 1997. "Project Escalation and Sunk Costs: A test of the International Generalizability of Agency and Prospect Theories," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 28(1), pages 101-121, March.
    • Handle: RePEc:pal:jintbs:v:28:y:1997:i:1:p:101-121
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    Cited by:

    1. Griffith, David A. & Harmancioglu, Nukhet & Droge, Cornelia, 2009. "Governance decisions for the offshore outsourcing of new product development in technology intensive markets," Journal of World Business, Elsevier, vol. 44(3), pages 217-224, July.
    2. Astria Wulan Permatasari & Laeli Budiarti & Kiky Srirejeki, 2020. "The Effect Of Sunk Cost, Framing Effect, And Educational Background On The Escalation Of Commitment," Journal of Contemporary Accounting, Master in Accounting Program, Faculty of Business & Economics, Universitas Islam Indonesia, Yogyakarta, Indonesia, vol. 2(1), pages 49-61, May.
    3. Lu, Qiongfang & Wilson, Craig, 2024. "Infrastructure financing in Africa," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 91(C).
    4. Schultz, Joseph Jr. & Lopez, Thomas J., 2001. "The impact of national influence on accounting estimates: Implications for international accounting standard-setters," The International Journal of Accounting, Elsevier, vol. 36(3), pages 271-290, September.
    5. Flavius-Andrei GUINEA, 2016. "Study regarding the impact of cultural factors on management accounting systems," The Audit Financiar journal, Chamber of Financial Auditors of Romania, vol. 14(144), pages 1359-1359.
    6. Driouchi, Tarik & Trigeorgis, Lenos & So, Raymond H.Y., 2020. "Individual antecedents of real options appraisal: The role of national culture and ambiguity," European Journal of Operational Research, Elsevier, vol. 286(3), pages 1018-1032.
    7. Haka, Susan F. & Heitger, Dan L., 2004. "International managerial accounting research: A contracting framework and opportunities," The International Journal of Accounting, Elsevier, vol. 39(1), pages 21-69.
    8. Duxbury, Darren, 2012. "Sunk costs and sunk benefits: A re-examination of re-investment decisions," The British Accounting Review, Elsevier, vol. 44(3), pages 144-156.
    9. Peter Gordon Roetzel & Burkhard Pedell & Daniel Groninger, 2020. "Information load in escalation situations: combustive agent or counteractive measure?," Journal of Business Economics, Springer, vol. 90(5), pages 757-786, June.
    10. Der‐Fa Chen & Peng‐Kwang Chen & Shao‐Hsi Chung & Kuo‐Chih Cheng & Chen‐Ho Wu, 2020. "The influence of performance feedback frequency and affective commitment on the sunk cost effect," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(5), pages 873-882, July.
    11. Tihanyi, Laszlo & Ellstrand, Alan E., 1998. "The involvement of board of directors and institutional investors in investing in transition economies: An agency theory approach," Journal of International Management, Elsevier, vol. 4(4), pages 337-351, December.
    12. Salter, Stephen B. & Sharp, David J. & Chen, Yasheng, 2013. "The moderating effects of national culture on escalation of commitment," Advances in accounting, Elsevier, vol. 29(1), pages 161-169.
    13. Lee, Hyoungjin & Park, Junmin & Chung, Chris Changwha, 2022. "CEO compensation, governance structure, and foreign direct investment in conflict-prone countries," International Business Review, Elsevier, vol. 31(6).
    14. Meyer, Kevin, 2016. "Immobilienbeschaffung durch lebenszyklusübergreifende Wertschöpfungspartnerschaften: Empirische Analyse der Chancen und Risiken betrieblicher Immobiliennutzer," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 81267, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    15. Samuel Y. Todd & Tamara A. Crook & Tony Lachowetz, 2013. "Agency Theory Explanations of Self-Serving Sales Forecast Inaccuracies," Business and Management Research, Business and Management Research, Sciedu Press, vol. 2(2), pages 13-21, June.
    16. Hannah S. Lee & David A. Griffith, 2012. "Comparative insights into the governance problems of agency theory: the influence of institutional environment on the basic human tenets," AMS Review, Springer;Academy of Marketing Science, vol. 2(1), pages 19-33, March.
    17. Robert Hassink & Dong-Ho Shin, 2005. "Guest Editorial," Environment and Planning A, , vol. 37(4), pages 571-580, April.
    18. C. Chang & Sin-Hui Yen, 2007. "The Effects of Moral Development and Adverse Selection Conditions on Managers’ Project Continuance Decisions: A Study in the Pacific-Rim Region," Journal of Business Ethics, Springer, vol. 76(3), pages 347-360, December.
    19. Salter, Stephen B. & Sharp, David J., 2001. "Agency effects and escalation of commitment: do small national culture differences matter?," The International Journal of Accounting, Elsevier, vol. 36(1), pages 33-45, February.
    20. Björn Röber, 2020. "Escalating internationalization decisions: intendedly rational, but only limitedly so?," Business Research, Springer;German Academic Association for Business Research, vol. 13(2), pages 455-484, July.
    21. Marion Festing & Ihar Sahakiants, 2011. "Determinants of share-based compensation plans in Central and Eastern European public companies: An institutional analysis," Journal of East European Management Studies, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 16(4), pages 338-357.

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