ESCALATION OF COMMITMENT AND CEO DEPARTURES: THEORY AND EVIDENCE

The escalation of commitment process involves a decision-maker continuing commitment to an investment after receiving negative information. This study develops a principal-agent model to explore how escalation decisions are linked with departures of CEOs from the position. With asymmetric information, a CEO has an incentive to conceal prior decision errors by escalating commitment to failing investments and leaving the firm before the outcome of investment decisions is disclosed publicly. Results of empirical analysis based on a sample of over 3,000 US firms are consistent with the theory and demonstrate that firms’ reporting of low financial performance relative to their industry as well as initiation of new discontinued operations are preceded, and not followed, by unplanned CEO departures.

When cooperation turns ugly: exploring the dark side of social capital

PurposeThis article explores theoretical assumptions regarding negative consequences of social capital in the empirical case of a failed cooperation project, and how these consequences are related to processes involving people, structures and environments.Design/methodology/approachThe article is based on a case study of a cooperation project within municipal labor market services. The methodology followed a theorizing process, where data were collected through ethnographical methods and analyzed in relation to existing concepts from theories describing negative effects of social capital and shadow organizing.FindingsThe results highlight how the development of negative social capital in the project can be understood through three relational processes, namely the social dynamics of insulation, homogenization and escalating commitment. The authors conclude that the quality of social capital is conditional upon complex interactions within social structures. Moreover, the results highlight the importance of studying organizing practices outside explicit structures, in order to identify the development of non-canonical practices and their consequences.Practical implicationsOrganizing cooperation projects that aim to bridge professional competencies or organizational boundaries have to be attentive toward informal organizing practices which if remaining unrecognized may grow and threaten the original intentions.Originality/valueThe study makes a theoretical contribution by combining a shadow organizing approach with literature on social capital. This combination proves especially useful for analyzing how organizational dynamics can influence the development of social capital into producing negative effects.

The association between cognitive biases and the quality of strategic decision making: Evidence from Jordanian banks

Excellence in strategic decision making is the driving force behind successful strategy adoption and implementation. However, it is becoming more and more complex as businesses emerge in unpredictable environments and conditions. The main objective of this study is to investigate the impact of cognitive bias and its dimensions (the illusion of control, prior hypothesis bias, escalating commitment bias and representativeness, and availability bias) on strategic decision making. In terms of methodology, the study used a random sampling technique. The study applied a survey as a research tool distributed among 138 bankers (employees at the managerial level) in managerial and administrative positions. Further, descriptive analysis and regression analysis were used to analyze the data and test hypotheses. The results show a positive and significant effect of the illusion of control and representativeness. The results show that the illusion of control, prior hypothesis bias, escalating commitment bias and representativeness, and availability bias significantly impact the strategic decision-making in Jordanian banks. It is concluded that the null hypothesis will be accepted and, therefore, the alternative hypothesis will be rejected based on the significant levels for the primary and secondary hypotheses. The factors of the escalating commitment bias, the availability bias, and the reasoning by analogy were not significant. Finally, the study recommends developing more literature on integrating psychology and discrimination and applying the research to different industries and managerial levels.

Don't Mention the War versus Escalating Commitment: Political Party Responses to Military Casualties

Do political parties change their position when military casualties increase? Several studies demonstrate that once military casualties increase, public support for sometimes even the government itself declines. With this potential backlash, once governing parties are faced with military casualties, do they (1) maintain that intervention was the “right thing” to do and even escalate their commitment by becoming even more pro-military or (2) try to avoid the blame and downplay the issue, i.e., “not mentioning the war”? And do the opposition parties become more negative or more positive about the military? To evaluate this, we measure the position on military issues in parties’ election manifestoes. Our dataset comprises 326 party policy changes in eleven Organisation for Economic Co-operation and Development (OECD) countries and focuses on post-Cold War military interventions. By using pooled time-series cross-sectional analysis, we find that opposition parties and governing parties respond differently. Generally, governing parties become more negative in their manifesto and opposition parties more positive. We also demonstrate important differences between party families and pre/post-9/11. Our analyses show that whether political parties change policy course once confronted with negative outcomes depends on their position in office, and also the direction in which they change policy depends on political ideology.