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| Author: | Cheng, M. M. |
| Title: | The Effects of Hurdle Rates on the Level of Escalation of Commitment in Capital Budgeting |
| Journal: | Behavioral Research in Accounting
2003 : VOL. 15, p. 63-86 |
| Index terms: | CAPITAL BUDGETING ANALYTICAL REVIEW ORGANIZATION BEHAVIOURAL ACCOUNTING |
| Language: | eng |
| Abstract: | This study proposes that organizations should consider project hurdle rates, as part of their control system design to reduce escalation of commitment behavior in managers. In particular, the authors empirically examined the escalation of commitment tendencies in managers receiving organization-set, self-set, and no hurdle rates. Consistent with prior expectations, the authors found self- set hurdle rates to be an effective control mechanism resulting in significantly lower levels of escalation of commitment. Contrary to expectations, however, organization-set hurdle rates were not effective. Self-set hurdle rates also resulted in significantly higher cut-off rates compared to the average return of the investment portfolio held by the managers. |
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