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Turnover in top management and de-escalation of commitment

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  • Dmitriy V. Chulkov
  • John M. Barron

Abstract

We explore how de-escalation of commitment is linked to top management turnover and economic changes at the firm. Escalation of commitment occurs when managers continue investment in a project after receiving negative information. A major determinant of escalation is the personal responsibility effect in that managers are more likely to escalate commitment to a failing project if they were responsible for the original investments. Prior studies suggest that a change in top management facilitates de-escalation of commitment as incoming managers who do not have such commitment are able to stop investments that are discovered to be failing. Our empirical analysis based on a sample of over 3,300 firms for the period from 1992 to 2016 demonstrates the link between specific top management turnover types and economic changes at the firm consistent with the de-escalation of commitment.

Suggested Citation

  • Dmitriy V. Chulkov & John M. Barron, 2019. "Turnover in top management and de-escalation of commitment," Applied Economics, Taylor & Francis Journals, vol. 51(23), pages 2534-2551, May.
    • Handle: RePEc:taf:applec:v:51:y:2019:i:23:p:2534-2551
    DOI: 10.1080/00036846.2018.1546955
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    Cited by:

    1. Hogrebe, Fabian & Lutz, Eva, 2024. "The sunk cost fallacy in venture capital staging: Decision-making dynamics for follow-on investment rounds," Journal of Corporate Finance, Elsevier, vol. 86(C).
    2. Yonatan Shertzer & Yael Brender-Ilan, 2023. "Why Do Leaders Escalate Their Commitment to a Failed Course of Action? A Moderated-Mediation Personality Traits Model," SAGE Open, , vol. 13(1), pages 21582440231, February.

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