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

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.

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).

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.

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

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.

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.