Hurdle Rate and Adverse Selection on Escalation of Commitment
This article tests the effect of hurdle rates and adverse selection on escalation of commitment. Participants consist of 135 junior managers who had passed two course of management. The result indicates that the managers with adverse selection conditions will tend not to continue unfavorable projects. This research also affirms that the managers with adverse selection conditions will be more likely not to continue projects that are not favorable under the conditions of self-set hurdle rates compared to the conditions of organization-set hurdle rates. This article may contribute to empirical evidence of a decline in comprehensive escalation of commitments.
Keywords: adverse selection, self-set hurdle rates, organization-set hurdle rates, escalation of commitment
Abedifar, P., Molyneux, P., & Tarazi, A. (2013). Risk in islamic banking. Review of Finance, 17(6), 2035–2096. https://doi.org/10.1093/rof/rfs041.
Ayoub, S. (2014). Derivatives in Islamic Finance: Examining the Market Risk Management Framework. Edinburgh: Edinburgh University Press.
Bazerman, M. (1994). Judgment in Managerial Decision Making (Third Edition). Newyork: John Wiley & Sons, Inc.
Beeler, J. ., & Hunton, J. . (1997). The Influence of Compensation Method and Disclosure Level on Information Search Strategy and Escalation of Commitment). Journal of Behavioral Decision Making, 10, 77–91.
Ben Salah Mahdi, I., & Boujelbene Abbes, M. (2018). Relationship between capital, risk and liquidity: a comparative study between Islamic and conventional banks in MENA region. Research in International Business and Finance, 45, 588–596. https://doi.org/10.1016/j.ribaf.2017.07.113.
Ben Zeineb, G., & Mensi, S. (2018). Corporate governance, risk and efficiency: evidence from GCC Islamic banks. Managerial Finance, 44(5), 551–569. https://doi.org/10.1108/MF-05-2017-0186.
Brealey, R., & Mysers, S. (2000). Principles of Corporate Finance. McGraw-Hill.
Brockner, J. (1992). Escalation of Commitment to a Failing Course of Action: Toward Theoretical Progress. Academy of Management Review, 17(1), 39–62.
Carneiro-Da-Cunha, J. A., Dos Santos, M. G., De Souza, L. J., Alssabak, N. A. M., & Macau, F. R. (2015). The history of an Islamic entrepreneurship: Achieving exporting-network leadership through religious legitimacy. International Journal of Business and Globalisation, 15(3), 272–293. https://doi.org/10.1504/IJBG.2015.071921.
Cheng, et al. (2003). The Effect of Hurlde Rates on The Level of Escalation of Commitment in Capital Budgeting. Behavioral Research in Accounting, 15, 63–85.
Chepurenko, A. (2015). Entrepreneurship Theory: New challenges and future prospects. Foresight Russia, 9(2), 44–57. https://doi.org/10.17323/1995-459X.2015.2.44.57.
Chong, V. K., & Suryawati, R. F. (2010). The effect of job rotation policy in preventing managerial escalation of commitment. International Journal of Accounting, Auditing and Performance Evaluation, 7(3), 176–199. https://doi.org/10.1504/IJAAPE.2011.040833.
Clinton, D. (1999). Antecedent of Budgetary Participation: The Efect of Organizational, situational, and individual factors. Advances in Management Accounting, 8, 45-70.
Denison, C. A. (2009). Real options and escalation of commitment: A behavioral analysis of capital investment decisions. Accounting Review, 84(1), 133–155. https://doi.org/10.2308/accr.2009.84.1.133.
Dewi, R. ., & Supriyadi. (2012). The Effectiveness of Monitoring Controls and Individual Moral Reasoning in the De-escalation of Commitments. The Indonesian Journal of Accounting Research, 15(1), 1–20.
Dutta, S., & Fan, Q. (2009). Hurdle Rates and Project Development Efforts. Accounting Review, 84, 405–432.
Fersi, M., & Boujelbéne, M. (2017). Capital structure decisions of microfinance institutions and managerial behavioral biases: A survey and future directions. ACRN Journal of Finance and Risk Perspectives, 6 (1), 70–89.
Fox, S., & Hoffman, M. (2002). Escalation Behavior as A Specific Case of Goal-Directed Activity: A Persistence Paradigm. Basic and Applied Social Psychology, 24, 273–285.
Gosh, D. (1997). De-escalation Strategies: Some Experimental Evidence. Ehavioral Research in Accounting, 9, 88–112.
Harrell, A., & Harrison, P. (1994). An Incentive to Shirk, Privately Held Information, and Managers’ Project Evaluation Decisions. Accounting, Organizations and Society, 19(7), 569–577.
Harrison, P., & Harrell, A. (1993). Impact of “Adverse Selection” on Managers’ Project Evaluation Decisions. Academy of Management Journal, 36(3), 635–643.
Hensel, R., & Visser, R. (2018). Shared leadership in entrepreneurial teams: the impact of personality. International Journal of Entrepreneurial Behaviour and Research, 24(6), 1104–1119. https://doi.org/10.1108/IJEBR-03-2018-0133.
Hodgkinson, G. P., & Starbuck, W. H. (2009). Organizational Decision Making: Mapping Terrains on Different Planets. In The Oxford Handbook of Organizational Decision Making. https://doi.org/10.1093/oxfordhb/9780199290468.003.0001.
Horngren, et al, C. T. (2009). Cost Accounting: A Managerial Emphasis (Vol. 13/E). Prentice Hall.
Kalyebara, B., & Ahmed, A. . (2011). Determination and Use of a Hurdle Rate in the capital Budgeting Process: Evidence from Listed Australian Companies. IUP Journal of Applied Finance,17, 59–76.
Keil, M. (1995). Pulling The Plug: Software Project Management and The Problem of Project Escalation. MIS Quarterly, 19, 421–447.
Kutan, A. M., Naz, I., & Shah, S. M. A. (2018). Are top managers important for firm performance and idiosyncratic risk? Evidence from sharia vs non-sharia-compliant firms in the UK and Pakistan. World Economy, 41(3), 763–780. https://doi.org/10.1111/twec.12511.
Lanfranchi, M., Giannetto, C., & DE Pascale, A. (2016). Information asymmetry on rfid system in the Agrifood Sector: A study of consumer behaviour. Quality - Access to Success, 17(151), 73–77.
McNamara, G., Moon, H., & Bromiley, P. (2002). Banking on Commitmen: Intended and Unintended Consequences of an Organization`s Attempt to Attenuate Escalation of Commitment. Academy of Management Journal, 45(2), 443–452.
Moulton, W. N., Thomas, H., & Pruett, M. (1996). Business failure pathways: Environmental stress and organizational response. Journal of Management, 22(4), 571–595. https://doi.org/10.1016/S0149-2063(96)90025-2.
Naz, I., Shah, S. M. A., & Kutan, A. M. (2017). Do managers of sharia-compliant firms have distinctive financial styles? Journal of International Financial Markets, Institutions and Money, 46, 174–187. https://doi.org/10.1016/j.intfin.2016.05.005.
Pan, et al, G. (2006). Escalation and De-Escalation of Commitment: A Commitment Transformation Analysis of an E-Government Project. Information System Journal, 16, 3–21.
Rutledge, R. ., & Karim, K. . (1999). The Influence of Self-interest and Ethical Considerations on Managers’ Evaluation Judgments. Accounting, Organizations and Society, 24, 173–184.
Septyanto, D., Sudarwan, & Dewanto, I. J. (2017). Model behavior of Sharia investment decision on Muslim investor in Indonesia stock exchange (IDX). International Journal of Economic Research, 14(4), 353–363.
Shahari, F., Zakaria, R. H., & Rahman, M. S. (2015). Investigation of the expected loss of sharia credit instruments in global Islamic banks. International Journal of Managerial Finance, 11(4), 503–512. https://doi.org/10.1108/IJMF-12-2014-0196.
Sumaedi, S., Juniarti, R. P., & Bakti, I. G. M. Y. (2015). Understanding trust & commitment of individual saving customers in Islamic banking: The role of ego involvement. Journal of Islamic Marketing, 6(3), 406–428. https://doi.org/10.1108/JIMA-06-2013-0045.
Yunita, S. A. W., Soraya, E., & Maryudi, A. (2018). “We are just cheerleaders”: Youth’s views on their participation in international forest-related decision-making fora. Forest Policy and Economics, 88, 52–58. https://doi.org/10.1016/j.forpol.2017.12.012.
Article StatisticAbstract view : 156 times
PDF views : 97 times
How To Cite This :
- There are currently no refbacks.
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.