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.
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*David J. Sharp is Assistant Professor of Accounting at Richard Ivey School of Business, The University of Western Ontario. He obtained his Ph.D. at the Massachusetts Institute of Technology. His research interests include cross-cultural business ethics and management control systems.
**Stephen B. Salter is an Assistant Professor of Accounting in the Department of Accounting and Information Systems at the University of Cincinnati. He obtained his Ph.D. from the University of South Carolina. His research interests include cross-cultural differences in managerial decisionmaking, international differences in financial reporting. and financial reporting in emerging market economies.
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Sharp, D., Salter, S. Project Escalation and Sunk Costs: A test of the International Generalizability of Agency and Prospect Theories. J Int Bus Stud 28, 101–121 (1997). https://doi.org/10.1057/palgrave.jibs.8490095
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DOI: https://doi.org/10.1057/palgrave.jibs.8490095