Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/317530 
Year of Publication: 
2021
Citation: 
[Journal:] Journal of Business Economics and Management (JBEM) [ISSN:] 2029-4433 [Volume:] 22 [Issue:] 6 [Year:] 2021 [Pages:] 1416-1435
Publisher: 
Vilnius Gediminas Technical University, Vilnius
Abstract: 
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.
Subjects: 
escalation of commitment
discontinued operations
asymmetric information
principal-agent model
CEO turnover
labor economics
JEL: 
D82
G30
J63
M12
M50
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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