The Effects of Narcissism and Perspective-taking on Managers’ Escalation of Commitment

Abstract

Companies often have the opportunity to invest in capital assets. Unfortunately, the benefits of such investments are not always realized and managers are challenged with deciding whether they should withdraw their support for a failing endeavour. Termed “escalation of commitment”, this phenomenon describes situations in which managers continue to fund a failing course of action despite having an opportunity to withdraw (Staw 1976). While management accounting research has largely focused on designing controls to influence the behavior of employees, more recently, researchers have begun exploring how managers’ personalities impacts their decision-making and their response to management control systems (for a brief review, see Young et al. 2016). In this dissertation, I examine the effect of an individual difference, specifically narcissism, on managers’ escalation of commitment. I also investigate the effect of prompting individuals to consider the perspective of an outside manager to reduce individuals’ support for an underperforming project and whether this prompt interacts with managers’ narcissism. Based on prior research, I predict that narcissistic managers are less likely to reinvest in an underperforming project when they can withdraw and invest in an alternative project that offers the potential for higher returns. I also predict that managers who view negative investment feedback from the perspective of an outside manager will be less likely to reinvest. Based on my expectation that narcissistic managers exhibit reduced escalation tendencies, I predict that perspective-taking will be less effective in mitigating their commitment to an underperforming project relative to managers with low narcissism. Results of an experiment completed by 228 managers do not provide support for an effect of either narcissism or perspective-taking on managers’ support for an underperforming project. Interestingly, results indicate that perspective-taking increases the escalation tendencies of narcissistic managers while having no statistically significant effect on less narcissistic managers. Given these results, I propose a theory-based explanation for narcissistic managers’ response and suggest future research opportunities. Overall, this dissertation contributes to the growing literature examining how manager’s narcissism influences decision-making in organizations and is a first step in understanding how individual differences may influence the success of management control systems.