The influence of sunk costs, personal responsibility and culture on the tendency of accountants to facilitate escalation of commitment

Peni Fukofuka (Research School of Accounting and Business Information Systems, The Australian National University, Canberra, Australia)
Neil Fargher (Research School of Accounting and Business Information Systems, The Australian National University, Canberra, Australia)
Zhe Wang (Research School of Accounting and Business Information Systems, The Australian National University, Canberra, Australia)

Pacific Accounting Review

ISSN: 0114-0582

Publication date: 10 November 2014

Abstract

Purpose

This purpose of this study is to further the study of escalation of commitment by considering the supportive role of accountants in providing reports that favour continuation of unprofitable projects and whether this role is influenced by culture. Research on the escalation of commitment suggests that the decision to commit resources to a failing project is due to several factors that include sunk costs, personal responsibility and culture.

Design/methodology/approach

This study employs a between-subjects design to examine accountants’ willingness to provide a report that facilitates continuation of an unprofitable project. The manipulated independent variables are sunk cost (present or absent), the level of reporting responsibility (high or low) and culture (Pacific Islands or Australia).

Findings

Our results show that the presence of sunk cost is a motivation for accountants to provide reports that favour continuation of an unprofitable project. The results on cultural difference are also consistent with the contention that culture is influential in decision-making with respect to providing reports that favour continuation of an unprofitable project. We do not, however, find evidence consistent with a personal responsibility affect using the manipulation defined in this study.

Research limitations/implications

Consistent with this type of research, the results must be interpreted with respect to the specific design choices used in the experiment.

Practical implications

Continued research is needed to examine the impact of sunk costs and specific attributes of culture, such as the willingness to follow superiors, on the escalation of commitment to unprofitable projects. The mitigation of such effects through education of accountants to provide reports that do not favour continuation of unprofitable projects would, for example, be of interest to aid agencies and others investing in projects in developing economies in particular.

Originality/value

While previous research generally examines the decision-making role of managers in escalation of commitment to unprofitable projects, this study examines the supportive role that accountants play in facilitating managers’ escalation decisions. This issue is studied within a context examining the potential cultural impact of respect for authority.

Keywords

Citation

Fukofuka, P., Fargher, N. and Wang, Z. (2014), "The influence of sunk costs, personal responsibility and culture on the tendency of accountants to facilitate escalation of commitment", Pacific Accounting Review, Vol. 26 No. 3, pp. 374-391. https://doi.org/10.1108/PAR-12-2012-0065

Publisher

:

Emerald Group Publishing Limited

Copyright © 2014, Emerald Group Publishing Limited

To read the full version of this content please select one of the options below

You may be able to access this content by logging in via Shibboleth, Open Athens or with your Emerald account.
To rent this content from Deepdyve, please click the button.
If you think you should have access to this content, click the button to contact our support team.