Date of Award

1-1-2008

Degree Name

Doctor of Philosophy

Department

Accountancy

First Advisor

Rivers, Richard

Abstract

Previous studies have shown the continuation of a failing project occurs in many aspects of business and government, and that the commitment to and continuation of a previous decision can even apply to waiting on a bus, attending a play and mountain climbing. The continuation of a failing project or decision has also been called escalation of commitment. Several theories have been suggested to explain the reasons managers continue failing or doubtful projects. Among those theories are Agency Theory, Self-Justification Theory, Prospect Theory, Approach Avoidance Theory, Self-Efficacy Theory and National Culture Theory. This study incorporates Agency Theory, Approach Avoidance Theory and Self-Justification Theory to explain the effects of an alternative investment, magnitude of loss and monitoring on the likelihood of continuing a project. The experimental design of the study was a 2 (presence of an alternative investment: yes or no) x 2 (monitoring: low or high) x 3 (magnitude of loss: low, medium or high) between-subjects factorial design. Likelihood of continuing a project was measured in two ways: first, dichotomously (either "yes" the subjects continued the project, or "no" they did not) and second, on a 0-100 continuous scale. Data were analyzed using an analysis of variance for both dependent variables, as well as a priori contrasts to make planned comparisons. As predicted, main effects were found for the presence of an alternative investment and magnitude of loss. However, no significant effect was found for monitoring. It was also hypothesized that the combination of the presence of an alternative investment, "high" monitoring and "high" magnitude of loss would be enough of a psychological deterrent to cause decision makers to stop the project, even though it was 90% complete. However, this prediction was not validated. Interestingly, though, the combination of the presence of an alternative investment, "high" magnitude of loss and "low" monitoring was enough to cause decision makers to stop the project at a level significantly less than by chance for the continuous dependent variable, and marginally significant less than by chance for the dichotomous dependent variable. Most importantly, these findings suggest for the first time that decision makers are willing to stop a project even though it is 90% complete.

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