Managers’ Escalation Behavior in Equity Investment Decisions and the Role of Corporate Governance

Huang, Chih-Jen; Ho, Amy Yueh-Fang; Liang, Hsin-Yu; Chiang, Chun-Hung

doi:10.1080/1540496x.2015.1117872

Cited by 1 publication

(1 citation statement)

References 41 publications

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“…Corporate governance and internal auditing provide mechanisms for the alignment of the managers' incentives with those of the firm's principals (Shleifer and Vishny 1997;Tawfik et al 2023). The escalation literature suggests that strong corporate governance and monitoring incentives help alleviate the escalation of commitment by managers (Buchholtz et al 1999;Huang et al 2016;Sleesman et al 2018;Licht 2021). The rotation of duties in management has been proposed as a de-escalation strategy (Chulkov and Barron 2019).…”

Section: Introductionmentioning

confidence: 99%

Turnover by Non-CEO Executives in Top Management Teams and Escalation of Commitment

Chulkov

2024

JRFM

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This article investigates the relationship between the decision-making bias known as escalation of commitment and the turnover of non-CEO executives in top management teams. The phenomenon of escalation of commitment is observed when decision makers persist with business investments that have a low likelihood of success. Theoretical explanations for the association between executive turnover and escalation include self-justification and reputation protection. Top managers may conceal prior errors, escalate commitment to earlier decisions, and exit the organization before the outcome of decisions is observed. Successor managers do not have a commitment to earlier decisions and have the capability to stop investments that are discovered to be failing. Empirical analysis utilizing a sample of over 1600 U.S. firms confirms that departures by non-CEO executives from top management teams are associated with an increased likelihood of new reporting of discontinued operations and extraordinary items by firms and a reduction in the firms’ performances relative to their industry. These effects reflect de-escalation activities and are amplified in the years concurrent with and following a joint departure of multiple management team members. Prior empirical studies on escalation and de-escalation behavior focused on CEO turnover. The contribution of this article is its documenting of the key role of non-CEO managers and team turnover in the context of escalation.

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Section: Introductionmentioning

confidence: 99%

Turnover by Non-CEO Executives in Top Management Teams and Escalation of Commitment

Chulkov

2024

JRFM

View full text Add to dashboard Cite

show abstract

Managers’ Escalation Behavior in Equity Investment Decisions and the Role of Corporate Governance

Cited by 1 publication

References 41 publications

Turnover by Non-CEO Executives in Top Management Teams and Escalation of Commitment

Turnover by Non-CEO Executives in Top Management Teams and Escalation of Commitment

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