Escalating Commitment: Business Investments and CSR

There are many instances, in all areas of business, in which individuals can become committed to a course of action that begins costing more than it is producing. Because it is often possible for persons who have suffered a setback to recoup their losses through an even greater commitment of resources to the same course of action, a cycle of escalating commitment can be produced (Staw, 1981). This thesis serves to address prior literature and prior studies based on the theory of escalation behavior . We furthered our research by conducting an experiment using university students to test certain said theory with the incorporation of specific variables (i.e. tax-avoidance strategies vs. sustainable investing). As such, this thesis was designed with the purpose of trying to understand why such behavior exists and what factors may have significant influence on the cycle known as escalating commitment

Escalation Bias: Does It Extend to Marketing?

Escalation bias implies that managers favor reinvestments in projects that are doing poorly over those doing well. We tested this implication in a marketing context by conducting experiments on advertising and product-design decisions. Each situation was varied to reflect either a long-term or a short-term decision. Besides these four conditions, we conducted three replications. We found little evidence of escalation bias by 365 subjects in the seven experimental comparisons.escalation bias, marketing

Options for Human Capital Acquisition

An \u27options\u27 view of human capital acquisition explains value creation through timedeferred, sequential, path-dependent investment choices and addresses gaps in the resourcebased theory explanation of the relationship between human resources and competitive advantage. Firms will invest in options for human capital, using alternative employment arrangements like temporary/contractual/part-time workers and internships, or by outsourcing the work, when uncertainty associated with human capital is high and investments in human capital are largely irreversible. We discuss various options for skills and employees, two interrelated components of human capital. These are flexibility options, options to wait or defer, options to abandon, learning options, and switching options. The opportunity cost of not having options is quantifiable, which makes the real options approach valuable for strategic HRM decisions

Venture capital internationalization : synthesis and future research directions

Research on venture capital internationalization (VC) has expanded rapidly over the last decade. This paper reviews the extant literature on VC internationalization and highlights gaps in our knowledge. We identify three major research streams within this literature, which revolve around the following questions: (1) which VC firms invest across borders and what countries do they target, with a macro-economic or a micro-economic focus; (2) how do VC firms address the liabilities of non-domestic investing; and (3) what are the real effects of international VC investments? We provide an overview of the contributions in these research streams, discuss the role of public policy, and suggest avenues for future research. Specifically, we call for a deeper understanding of: (1) the functioning and impact of VC firms’ modes of internationalization; (2) micro level processes such as the functioning and decision making of international investment committees, the interaction between headquarters and local offices, or the development of international human and social capital; (3) the role of country institutions in VC internationalization and its real effects; and (4) the interplay of international VC with alternative financing sources

Sustained spending and persistent response: a new look at long-term marketing profitability.

An intuitively appealing decision rule is to allocate a company's scarce marketing resources where they have the greatest long-term benefit. This principle, however, is easier to accept than it is to execute, because long-run effects of marketing spending are difficult to estimate. We address this problem by examining the over-time behavior of market response and marketing spending, and identify four commonly occurring strategic scenarios: business as usual, hysteresis in response, escalating expenditures and evolving-business practice. We explain and illustrate why each scenario can occur in practice, and describe its positive and negative consequences for long-term profitability.When good time-series data on revenue and marketing spending are available, it is possible to apply multivariate persistence measures to identify which of the four strategic scenarios is taking place. We apply these ideas to data from two major companies in the packaged-foods and pharmaceuticals industries. We observe several long-term marketing effect, some with profitable and some with unprofitable consequences, and offer recommendations for each case.We conclude that high-quality databases along with modern time-series methods can be instrumental in extracting vital long-term marketing-effectiveness information from readily available data. Therefore, managing marketing resources with long-run performance in mind need no longer be a pure act of faith on behalf of the executive. We hope that this and future work will contribute toward an improved allocation of scarce marketing resources in our companies.Marketing; Profitability;

R&D Investment Strategies of Firms: Renewal or Abandonment. A Real Options Perspective

This research develops a real options perspective framework for firms‘ valuation of strategic investments. I propose that a real options perspective can provide an effective means of re-examining and revising firms‘ strategic investment decisions in general, and of making individual, investment-level abandonment decisions in particular. The principal purposes of this research are to explore whether firms make abandonment decisions in accordance with real options theory, and the relative strength of the traditional economic theory, the behavioral theory of the firm and real options theory in explaining firms‘ abandonment decisions. I develop a set of hypotheses in the context of firms‘ R&D investment strategies in the world chemical industry. Using U.S. patent renewal data, I empirically test the hypotheses. The results from the empirical analyses suggest that, 1) firms‘ actual innovation abandonment decisions are consistent with the predictions made from real options theory; and 2) a real options perspective provides better explanation of firms‘ abandonment decisions than traditional economic theory and the behavioral theory of the firm. Therefore, taking such a perspective allows us to better predict abandonment than the other models. In investigating whether insights from real options theory enlighten firm‘s abandonment decisions, this research contributes to the strategic decision making literature, real options research, RBV and dynamic capability research and innovation literature

International venture capital investors and their portfolio companies in Europe

Many companies including Apple, Facebook, Google, Microsoft and Starbucks may not have existed, or may not have developed to the same level and size they have without venture capital (VC) funding. VC investments are in essence long-term, illiquid, high-risk, hands-on, privately held, minority equity investments in high-growth-potential companies initiated and managed by professional investors. While these specific characteristics explain the benefits of VC’s proximity to portfolio companies (PCs), paradoxically the fraction of non-domestic investments has been increasing significantly in the last two decades. The increasing occurrence and disadvantages of investing across borders hence raises the question of how international VC firms manage the additional difficulties and what their impact is on PCs. The focus of my dissertation lies on the differential impact of VC origin (i.e. cross-border, branch and domestic VC firms) in three main aspects of the VC investment cycle. In a first step, VC firms carefully select potential investment targets based upon the future prospects. Second, VC firms typically do not only provide financial resources but also engage in time consuming post-investment monitoring and value adding activities. Finally, in contrast to other investors, VC firms are not interested in taking permanent equity positions in their PCs. Instead, they exit their investments after a five to seven year holding period. In a first study I examine the impact of VC origin on the mutual matching decision combining preferences of both investors (i.e. supply side) and entrepreneurs (i.e. demand side). From a supply perspective, results show that cross-border VC firms have a higher probability to invest with local investors, larger investment syndicates and more experienced investors. We further demonstrate that investing through a local branch allows foreign VC firms to exhibit the same investment behaviour as domestic VC firms. These results thereby exhibit that local and more resourceful co-investors or establishing a local presence mitigate the disadvantages linked to foreign investing. From a demand perspective, findings show that less developed companies have a higher probability to match with domestic VC. Moreover, seed stage companies in which only cross-border VC firms co-invest have a higher probability to attract a local VC firm as opposed to an additional cross-border VC firm. These results display that entrepreneurs dynamically assess their companies’ resource gaps and consequently target VC investors with specific geographic origins based upon the required resources. My second study concentrates on the role of domestic and cross-border VC in PCs’ growth. Findings demonstrate that companies initially backed by domestic VC investors exhibit higher growth in the short term compared to companies backed by cross-border investors. In contrast, companies initially backed by cross-border VC investors exhibit higher growth in the medium term. Finally, companies that are initially funded by a syndicate comprising both domestic and cross-border VC investors exhibit the highest growth. Overall, this study provides a more fine-grained understanding of the role that domestic and cross-border VC investors can play as their PCs grow and thereby require different resources or capabilities over time. Finally, in a third study I analyse how cross-border, branch and domestic VC firms behave when PCs do not meet initial expectations. Results show that domestic investors have a high tendency to escalate their commitment to a failing course of action. In contrast, cross-border investors terminate their investments efficiently, even when investing through a local branch. This is explained by cross-border investors having more limited access to soft information, a lower social involvement with the project and a lower embeddedness in the local economic and social environment, which are all factors that contribute to lower escalation of commitment. Local branches of cross-border investors are further shielded from escalation of commitment through structural safeguards. Domestic investors may hence benefit from mimicking cross-border investors’ behaviour

Building an Ethical Small Group (Chapter 9 of Meeting the Ethical Challenges of Leadership)

This chapter examines ethical leadership in the small-group context. To help create groups that brighten rather than darken the lives of participants, leaders must foster individual ethical accountability among group members, ensure ethical group interaction, avoid moral pitfalls, and establish ethical relationships with other groups. In his metaphor of the leader\u27s light or shadow, Parker Palmer emphasizes that leaders shape the settings or contexts around them. According to Palmer, leaders are people who have an unusual degree of power to create the conditions under which other people must live and move and have their being, conditions that can either be as illuminating as heaven or as shadowy as hell. 1 In this final section of the text, I\u27ll describe some of the ways we can create conditions that illuminate the lives of followers in small-group, organizational, global, and crisis settings. Shedding light means both resisting and exerting influence. We must fend off pressures to engage in unethical behavior while actively seeking to create healthier moral environments