The effect of obedience pressure and authoritarianism on managers' project

evaluation decisions
Vincent K Chong
a,
, Imran Syarifuddin
b,1
a
Accounting and Finance (M250), UWA Business School, The University of Western Australia, 35 Stirling Highway, Crawley, Western Australia 6009, Australia
b
Audit Board of The Republic of Indonesia, Jl. Andi Pangeran Pettarani, Makassar, South Sulawesi 90222, Indonesia
a b s t r a c t a r t i c l e i n f o
Keywords:
Obedience pressure
Authoritarianism
Project evaluation decisions
This study examines the effects that obedience pressure and the personality trait of authoritarianism have on
managers' project evaluation decisions. A laboratory experiment was conducted to test the various
hypotheses formulated in this study. The results suggest that project managers have a higher inclination to
escalate their commitment to a failing project in the presence of obedience pressure. The results further
reveal that project managers' tendency to escalate is most prominent in a private information situation and
in an obedience pressure condition. In addition, the results suggest that low authoritarian project managers
exhibited a greater tendency to continue a failing project regardless of the extent of obedience pressure
under private information conditions. Furthermore, high authoritarian project managers exhibited a greater
tendency to continue a failing project only when obedience pressure was present under private information
conditions.
Crown Copyright 2010 Published by Elsevier Ltd. All rights reserved.
1. Introduction
Prior accounting studies (e.g. Davis, DeZoort, & Kopp, 2006;
DeZoort & Lord, 1994; Lord & DeZoort, 2001) have recognized the
adverse effect of obedience pressure on individuals' judgments and
decisions, but to date, little is known about how obedience pressure
inuences individuals' escalation behavior.
2
In addition, prior escala-
tion of commitment literature has not considered the joint effect of
obedience pressure and individuals' personal trait of authoritarianism
on their propensity to escalate their commitment to a failing or
unprotable project. Our study extends the escalation of commitment
literature by examining the impact of obedience pressure and the
personality trait of authoritarianism on managers' project evaluation
decisions.
Our study contributes to the literature in the following ways. First,
the results of this study suggest that the impact of obedience pressure
on auditors' attitudes and behaviors can be generalized into the
escalation of commitment literature. Project managers who are
subject to obedience pressure are more likely to continue a failing or
unprotable project thanproject managers who are not.
3
The results of
our ndings contribute to our understanding of the challenges facedby
organizations to establish effective monitoring and control mechan-
isms to counter such pressure. Furthermore, our results suggest the
need for corporate transparency and policies that support an ethical
business environment to mitigate any inappropriate conduct within
organizations. Prior studies have examined various de-escalation
strategies (see e.g. Booth & Schulz, 2004; Cheng, Schulz, Luckett, &
Booth, 2003; Ghosh, 1997; Kadous &Sedor, 2004; Ku, 2008).
4
Potential
de-escalating strategies include: (1) rms creating an environment in
which project managers are motivated to follow policies for
documenting and pursuing resolution to disagreements; and (2)
setting up an internal division (e.g. a conict-resolution committee) to
deal with conicts arising among employees and between employees
and management.
Advances in Accounting, incorporating Advances in International Accounting 26 (2010) 185194
Corresponding author. Tel.: +61 8 6488 2914.
E-mail addresses: Vincent.Chong@uwa.edu.au (V.K. Chong), imran3329@bpk.go.id
(I. Syarifuddin).
1
Telephone: +62 411 854977x212.
2
Obedience pressure refers to the pressure to submit to the directions of authority
(Brehm & Kassin, 1993). DeZoort & Lord (1997, p. 41) note that there are two other
types of pressures: (1) conformity and (2) compliance. Conformity (peer) pressure
refers to the pressure in which individuals tend to alter their attitudes or behavior in
order to be consistent with perceived group norms, while compliance pressure refers to
the pressure to go along with explicit requests from individuals at any level. Our study
focuses on obedience pressure.
3
The terms failing and unprotable projects are used interchangeably in this
paper.
4
Ghosh (1997) found that three control procedures were effective in reducing the
escalation of commitment: (1) providing unambiguous feedback regarding previous
expenditure, (2) preparing a progress report on the project, and (3) providing
information about future benets of additional expenditures. Cheng et al. (2003)
found that project managers who were involved in setting the hurdle rate overcame
the escalation tendency. Booth and Schulz (2004) found that a strong ethical
environment reduced managerial escalation of commitment. Kadous and Sedor (2004)
proposed the engagement of a third-party consultant with the specic purpose of
making project continuation recommendation played a signicant role in preventing
project managers escalation of commitment. Ku (2008) found that post-escalation
regret can allow individuals to learn to de-escalate.
0882-6110/$ see front matter. Crown Copyright 2010 Published by Elsevier Ltd. All rights reserved.
doi:10.1016/j.adiac.2010.04.004
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Second, the ndings of this study also contribute to our under-
standing of the joint effect of obedience pressure and authoritarian
personality on managers' escalating behavior. Our results suggest that
when obedience pressure is present, high authoritarian project
managers tend to escalate their commitment to a project regardless
of the information available, while lowauthoritarian project managers
choose to escalate their level of commitment only when the
information is privately available. These results suggest that the
behavior of some project managers, while rational, is motivated by
self-interest. That is, the presence of obedience pressure in a situation
where information is only privately available may be perceived by low
authoritarian project managers as sufcient justication to pursue
their ownself-interest by deciding to continue a failing project without
fear of public censure or of the negative repercussions of such
decisions (DeZoort & Lord, 1994; Rettig, 1969). The differences
between high and low authoritarian individuals in processing task
relevant informationshouldalso be a major concernfor superiors, who
may need to support high authoritarian managers by providing them
with any relevant information needed to complete their task. On the
other hand, the superiors may need to provide room for low
authoritarian project managers to participate actively in searching
for relevant job information to complete their task (Chenhall, 1986).
The remainder of the paper is organized as follows. In the next
section, the relevant literature is reviewed and hypotheses underlying
the study are developed. Subsequent sections present the research
method, results, conclusion and limitations of the study.
2. Hypotheses development
2.1. The effect of obedience pressure
Milgram(1963, 1965, 1974) notes that individuals who experience
pressure to obey a command made by the principal (obedience
pressure) can blindly perform their job even though the command is
contrary to their attitudes, beliefs and values. This behavior results
from a psychological change in the individual from an autonomous
state to an agentic state.
5
This psychological shift leads agents to feel
no responsibility for their performed action, since any unfavorable
consequences can be transferred back to the superior who directed
themto performthe action. Numerous studies (DeZoort & Lord, 1994;
Lord &DeZoort, 2001) have recognized the adverse effect of obedience
pressure, particularly in the context of public accountants' evaluation
judgments. For example, DeZoort and Lord (1994) nd that public
accountants exhibit a tendency to compromise their professional
norms and standards when they are subject to obedience pressure
fromsuperiors. Inanother study, LordandDeZoort (2001) ndthat the
presence of obedience pressure signicantly affects public accoun-
tants' decisions to sign off on materially misstated account balances, in
comparison with those who do not experience such pressure.
Attribution theory provides an explanation as to why individuals
faced with obedience pressure do not feel responsible for their actions
(Harrison, West, & Reneau, 1988; Jansen & von Glinow, 1985; Kaplan
& Reckers, 1985). It is argued that individuals who commit acts that
violate normatively correct performance standards tend to external-
ize attribution to others or environmental factors. For example,
Kaplan and Reckers (1985) nd that auditors with a good working
history tend to externalize their failure to situational factors. Harrison
et al. (1988) suggest that agents tend to emphasize the role of other
individuals and environmental factors on their behavior; they will
attribute failure to these factors, especially if the failure has an impact
on their self-worth. Therefore when Harrison et al. (1988) examined
the effect of attributional tendency between superiors and subordi-
nates within production variance investigations, they found that
when unfavorable production variance occurs, the subordinates tend
to attribute this failure externally (e.g. saying that other subordinates
have also frequently made the same mistakes).
Given the above discussion, we propose that project managers who
experience obedience pressure will have a higher tendency to increase
their commitment to a failing project, since any negative consequences
owing from this decision can be attributed or transferred back to the
authority. When obedience pressure is absent, however, project
managers are less likely to exhibit escalation behavior, since there is
no existing psychological justication, nor external attribution
strategies, available to enable such behavior. Stated formally:
H1. Project managers who are subject to obedience pressure will
exhibit a greater tendency to continue a failing project than project
managers who are not subject to obedience pressure.
2.2. The effect of information availability and obedience pressure
When adverse selection problems exist, the decisions made by
project managers may be highly rational viewed from their perspec-
tive, if not from the rm's perspective, particularly if the potential
effects on the agent's future reputation are taken into consideration
(Kanodia, Bushman, & Dickhaut, 1989). Kanodia et al. (1989) suggest
that project managers' escalation behavior is one example of a larger
phenomenon of hiding private information on human capital (e.g.
managerial talent).
6
Since managers' talent is inferred by others
through their decisions, any future events resulting from these
decisions will have the potential to reveal to the labor market
which managers are talented or not talented. Kanodia et al. theorize
that managers who decide to escalate in the second period of a project
can expect to receive higher wages in the future than managers who
decide to switch. Switching projects in the second period results in a
negative effect on a manager's future expected wages, since this
decision reveals that the managers have made an incorrect decision in
the rst period.
Harrison and Harrell (1993) and Harrell and Harrison (1994)
provide empirical evidence to support the theory of Kanodia et al.
(1989). They conclude that when project managers realize that the
project that they are managing is failing, they tend to terminate the
project if the information about the failing project is publicly available.
The rationale for terminating the project: (1) others would know that
the project was failing; (2) managers had already suffered damage to
their reputation, so no further benet could be obtained from
escalation; and (3) the decision to continue under such conditions
could even result in further damage to their reputation as talented
project managers. However, when the information about the failing
project is known only to the project managers (i.e. the information is
privately available), they tend to continue the project even though
they realize that their decision is contrary to the rm's interest. By
doing so, they can further their own economic interest (e.g. future
career opportunities) without fear of repercussions.
The above discussion suggests that the type of availability of
information (i.e. private or public information) is an important
determinant of project managers' escalation tendency. Bearing in
mind the relatively greater emphasis on the preservation of reputation
among project managers, it is predicted that the availability of
information may contribute to the likelihood of obedience pressure
affecting project managers' decision making. When information about
the future unprotability of aninvestment project is publicly available,
the effect of obedience pressure may become diluted by the possibility
5
Autonomous state refers to a condition in which people see themselves as acting
on their own, whereas agentic state refers to a condition in which people see
themselves as agents carrying out another person's wishes (Milgram, 1974).
6
Kanodia et al. (1989, p. 65) dene managerial talent as, the ability to organise,
supervise and, in general, manage the various inputs needed for investment and
production.
186 V.K. Chong, I. Syarifuddin / Advances in Accounting, incorporating Advances in International Accounting 26 (2010) 185194
of public censure. Bothproject managers andothers intheindustryrealize
that such pressure (policy) is inappropriate. Both of themalso notice that
the current project is failing and therefore should be terminated. As a
consequence, being shielded from the possibility of public censure by
deciding not to obey may protect a project manager's current unfavorable
performance fromfurther damage. On the other hand, when information
is privately available, the decision to embrace the instruction to continue
the project will be more benecial from the standpoint of the project
managers. That is, it will, at least inthe short term, delay their unfavorable
performance from being detected by others, and the presence of
obedience pressure may give project managers additional feelings of
security about their decision (e.g. to avoid immediate punishment). This
prediction is consistent with Lord and DeZoort (2001) notion that the
effect of obedience pressure will depend on subordinates' perceivedcosts
and benets related to their responses. Lord and DeZoort (p. 217)
mention that auditors may prioritize the importance of securing a
favorable evaluation fromsuperiors who provide inappropriate direction
over the risk of getting caught.
In summary, project managers who are subject to the presence of
obedience pressure under conditions of private information will have
a higher tendency towards escalating their commitment to continue a
failing project than will their counterparts who are subject to only one
or neither of these conditions. Stated formally:
H2. Project managers who experience obedience pressure and private
information will exhibit a greater tendency to continue a failing
project than project managers who experience only one or neither of
these conditions.
2.3. The effect of obedience pressure and authoritarian personality under
private information condition
It is suggested that authoritarianism as a personality trait might
inuence obedience pressure behavior (see DeZoort & Lord, 1994).
Previous studies (e.g. Chenhall, 1986; Feather, Boeckmann, & McKee,
2001; Feather & Deanna, 2000) suggest that high and low authori-
tarian individuals differ in the way they process and integrate
information. For example, Chenhall (1986) suggests that effective
information exchange in participative budgeting systems will be
determined by homogenous authoritarian dyads between subordi-
nates and superiors. Participation is found to be strongly associated
with subordinate job satisfaction and budgetary attitude in homog-
enous, rather than heterogeneous, dyads. Feather and Deanna (2000)
nd that high authoritarians are less likely to consider information
related to the offender's situation when making judgments about how
much punishment an offender deserves.
7
High authoritarians tend to
impose penalties indiscriminately, although to some extent there is a
mitigating factor in which low responsibility offenders warrant less
severe punishment. Low authoritarians, on the other hand, take the
responsibility factor into account, judging the offender with dimin-
ished responsibility to be less guilty. Similarly, Feather et al. (2001)
nd that judgments made by high and low authoritarian individuals
will vary depending on the different types of information available.
8
High authoritarian individuals are more sensitive and responsive to
information about legitimate authority. On the other hand, low
authoritarian individuals are less sensitive and responsive to the
information on legitimate authority but more sensitive and respon-
sive to information about risk awareness. Hence low authoritarian
individuals tend to blame the company if it is aware of the possible
consequences of its new procedures, even if these procedures
originate from higher authority.
DeZoort and Lord (1994) suggest that high authoritarian indivi-
duals tend to act in response to others who hold authoritative
positions and to others who occupy higher positions (see also Sanford,
1956). Low authoritarian personalities, on the other hand, are
characterized as individuals who are reluctant to deal with situational
and interpersonal factors such as authority-based instruction
unnecessarily, so that their decisions tend to be heavily reliant on
their individual feelings and values and what they perceive to be
correct and appropriate (DeZoort & Lord, 1994, p. 9). Hence low
authoritarian individuals tend to be more independent and rely more
upon their own rationality to support their judgment than do their
high authoritarian counterparts, whose decisions are more likely to be
inuenced by their superior's intervention and desires.
In relation to a manager's project evaluation judgment, therefore, it
is predicted that decisions made by lowauthoritarian project managers
will be inuenced mostly by the availability of information about the
investment project, rather than the presence of obedience pressure. The
aforementioned characteristics associated with low authoritarian
individuals suggest that low authoritarian project managers are less
sensitive and responsive to information from legitimate authority (e.g.
obedience pressure), but more sensitive and responsive to information
ontherisks associatedwiththeir actions. They tendto consider different
sides of the argument and put more effort into searching for additional
relevant information related to the assigned tasks and their conse-
quences. They may thus bemore inclinedtocarry out instructions if they
perceive possible benets from doing so. When information about a
failing project is publicly available, low authoritarian project managers
will realize that their decision to go along with imposed instruction to
continue the project will conict with public desire for the termination
of the project. On the other hand, a condition of private information
hides the true state of the failing project. Under such conditions, the
decision to go along with the pressure from above to continue tends to
be more benecial, since it can protect the project managers' current
unfavorable performance from being revealed in the labor market.
Accordingly, it is expected that lowauthoritarian project managers
are more likely to escalate their commitment to a failing project only
under conditions of private information, regardless of whether they
are subject to the presence or absence of obedience pressure. Stated
formally, the following hypothesis is tested:
H3. Under private information conditions, low authoritarian project
managers will exhibit a greater tendency to escalate commitment
regardless of the extent of obedience pressure.
High authoritarian project managers, on the other hand, will be
more agentic and more likely to perform activity-based instruction
than are low authoritarian project managers. The presence of
obedience pressure, which provides clear guidelines about the kind
of task to carry out, may be enough to fulll their expectations. This
condition is somewhat exacerbated by their unwillingness to accept
responsibility (Sanford, 1956). That is, by doing what they are
instructed to, they tend to transfer responsibility back to their
superior if their activities had negative consequences. Therefore it is
expected that high authoritarian project managers may perceive
obedience pressure as a primary factor in their decision to escalate
commitment. Stated formally, the following hypothesis is tested:
H4. Under private information conditions, high authoritarian project
managers will exhibit a greater tendency to escalate commitment
when they are subject to the presence of obedience pressure than
when no obedience pressure exists.
7
The scenario was whether a drug smuggler acted with full knowledge and
intention concerning the offence (high responsibility) or was duped by another person
to carry the drug (low responsibility) (Feather & Deanna, 2000, p. 14).
8
Feather et al. (2001) used two scenarios to describe a situation in which a ctitious
company distributed contaminated meat that led to serious food poisoning. First, the
Feranetti Company (the meat producer) was free to follow its own hygiene procedures
and the company was either aware or unaware of the risk that it took from these
procedures (Freedom condition). Second, the Feranetti Company was constrained by
the directives of a higher authority (the Health Commission); the company was either
aware or unaware of the risk it took as a result of these directed procedures
(Constraint condition).
187 V.K. Chong, I. Syarifuddin / Advances in Accounting, incorporating Advances in International Accounting 26 (2010) 185194
3. Research method
9
A controlled laboratory experiment was conducted to test the
proposed hypotheses. The participants consisted of 122 undergrad-
uate students enrolled in a management accounting course at a large
Australian university. In a management accounting course, these
students were taught about the concepts and issues relating to capital
budgeting and various evaluation techniques.
10
The average age of the
subjects was 21.20 years. These subjects had, on average,
17.35 months of work experience. Seven participations responded
incorrectly to one or both manipulation check questions, so their data
were excluded, leaving 115 usable responses for nal data analyses.
3.1. The decision task
The decision scenario administered was adopted from Harrell and
Harrison (1994). All participants assumed the role of a junior project
manager with The GlobalOne Company and were asked to make a
decision related to the continuation or discontinuation of a project
that they had initiated and managed. The project, Project K, had a
seven-year life span, and it was at the end of the fourth year that
project managers were asked to make a decision. Information about
the historical and expected future performance of Project K was
provided. For instance, the project's expected net cash inow had
originally been $270,000 each year. During the past 4 years, the actual
net cash inow was $320,000, above the expected net cash inow.
However, due to a downturn in the economy, the junior project
manager had already managed ve failed projects. As for Project K, it
was also predicted that for the remaining 3 years of its life, its
expected net cash inowwould drop sharply to only $50,000 per year.
The net present value (NPV) of the remaining three years' expected
net cash inow would be $144,327, while if this project were
terminated, its salvage value in the remaining 3 years of its lifetime
would be $177,500. Therefore the best decision from the rm's
perspective would be to terminate Project K since its NPV was below
its current salvage value.
In addition, apart from Project K's historical and future perfor-
mance data, participants were also provided with information about
GlobalOne's investment project policy, which they needed to consider
in their decision-making process. The investment policy suggested
that project managers should not discontinue more than ve failing
projects in any calendar year. The rationale for this policy was to
discourage project managers from simply initiating new projects that
might not be protable for the company. Furthermore, unprotable or
failing projects that were terminated would be costly to the company.
Any violation to this investment policy would attract severe
disciplinary actions.
11
The objective of this information was to elicit
the presence or absence of obedience pressure.
Participants were randomly assigned to one of four treatments.
These were generated by crossing two levels of information (public
and private) with obedience pressure (absent and present). Partici-
pants assumed the role of a junior project manager with a growing
reputation as a talented project manager. This had resulted in a
competing rm, NationalBest Company, initiating recruitment
discussions for a better position with a substantially higher salary. If
the unprotability of a project were known publicly, it could damage
the growing reputation and marketability of the junior manager and
cause the competing rm to stop the recruitment discussion.
Participants in the public information condition were told that the
information about Project K's unprotable future performance was
already known to others in the rm and industry, including the
NationalBest Company. Participants in the private information
condition were told that information about the project's unprotable
future economic viability was known only to themas project manager,
and would not be known to others, including the NationalBest
Company, until the project's completion in 3 years. Participants in
the condition where obedience pressure was absent were told that the
recommended investment policy was too restrictive and narrow
minded; therefore this policy had been abolished. Instead, the chief
executive ofcer (CEO) suggested that all project managers should
make their own decisions independently based on all the relevant
available information. Participants in the condition where obedience
pressure existed were told that the CEO was very keen on the
recommended policy, which had been implemented only 3 months
ago. They were also told that if they chose to discontinue Project K,
they were likely to face severe punishment resulting fromtheir having
violated the investment policy and disobeyed the CEO's command.
Participants were asked to respond to two manipulation check
questions. First, they were asked whether the project's performance
evaluation information was either known only to them as project
manager, or widely known to others in their rm or industry. Second,
they were asked whether they were experiencing pressure to obey
the commands of their CEO and to conform to the company's
investment policy.
12
After completing these manipulation check
questions, participants were also asked to complete the authoritar-
ianism scale.
The dependent variable used in the experiment was the partici-
pants' preference to continue or discontinue an unprotable project.
The decision to continue or discontinue the project was indicated on a
10-point Likert-type scale numbered from 1 to 10. The scale 1 was
labeled denitely continue, and 10 was labeled denitely discontinue.
The three independent variables were (1) the availability of informa-
tion (public or private), (2) obedience pressure (absent or present)
and (3) the subject's personality trait of authoritarianism (high or
low).
3.2. Measurement instrument
13
Participants' authoritarian personality was measured by a seven-
point Likert-type scale originally developed by Rigby (1984). The
instrument is a reduced form of Rigby (1982) General Attitude Toward
Institutional Authority (GAIAS). This scale has been used in prior
accounting studies (e.g. DeZoort & Lord, 1994). This instrument was
developed to capture a pro-authority attitude as a dimension (see
DeZoort & Lord, 1994; Harrison, 1991; Rigby, 1982, 1984) and is
suitable to explain the effects of the obedience pressure treatment
used in our experiment. Participants were asked to express their
opinion on each item using the seven-point scale, anchored with (1)
strongly disagree and (7) strongly agree. Consistent with prior
accounting studies (DeZoort & Lord, 1994; Heaven & Rigby, 1986;
Ray & Lovejoy, 1990; Rigby, 1984, 1987), the scores of the 16 items
were summed to form a composite measure of the scale for
authoritarianism. The Cronbach alpha coefcient of 0.71 (Cronbach,
1951) obtained for the scale indicates satisfactory internal reliability
for the scale.
9
The case materials for the experiment are shown in Appendix A.
10
Ashton and Kramer (1980) and Clinton (1999) have noted that students are
justiable surrogates for managers. Prior studies (e.g. Harrell & Harrison, 1994; Schulz
& Cheng, 2002) have suggested that students who have just studied normative
decision making (e.g. capital budgeting analysis) can be considered as having
sufcient background knowledge for the project evaluation decision task described
in this study.
11
The severe disciplinary actions were: (1) no entitlement to any annual salary
increment and/or bonus, (2) no involvement in any projects or investment decision-
making processes for the next 5 years, (3) diminished prospects of promotion or
career advancement and (4) the possibility of termination of their employment
contract.
12
Seven participants had responded incorrectly to either one or both manipulation
check questions. Therefore they were excluded in subsequent data analyses.
13
The measurement instrument for authoritarianism is shown in Appendix B.
188 V.K. Chong, I. Syarifuddin / Advances in Accounting, incorporating Advances in International Accounting 26 (2010) 185194
4. Results
H1 predicts that project managers will exhibit a greater tendency
to continue a failing project when obedience pressure is present than
when it is absent. The results presented in Panel A, Table 1 show that
the mean response of project managers who experienced obedience
pressure (4.28) is higher than the mean response of project managers
who did not experience such pressure (6.11). A t-test shows that the
difference in the mean scores between these two groups is statistically
signicant (t-value=3.501, pN0.001). Therefore H1 is supported. This
result indicates that the managers who were subjected to obedience
pressure were more likely to continue a failing project than the
managers who were not subject to such pressure.
H2 predicts that project managers in a condition of private
information and subject to obedience pressure would have a higher
tendency to escalate commitment than project managers who experi-
ence only one or neither of these conditions. The results presented in
Panel B, Table 1 show that there is a statistically signicant
(F-value=2.776, pb0.05, 1-tailed) two-way interaction between
information availability and obedience pressure.
A closer look at Table 1, Panels A and C reveal the nature of this
interaction. The results presented in Table 1, Panels A and C, reveal that
the mean preference responses of project managers in the Private
Information Condition and Presence of Obedience Pressure cells is
statistically signicantly less than that of those in (1) Public Information
Condition and Absence of Obedience Pressure cells (i.e., Cell
4=2.45bCell 1=7.21, mean difference=4.77, pb0.01, 1-tailed); (2)
Public Information and Presence of Obedience Pressure cells (i.e., Cell
4=2.45bCell 2=6.10, mean difference=3.66, pb0.01, 1-tailed) and
(3) Private Information and Absence of Obedience Pressure cells (i.e.,
Cell 4=2.45bCell 3=5.03, mean difference=2.59, pb0.01, 1-tailed).
This is illustrated in Fig. 1. Taken together, these results provide strong
support for hypothesis H2.
H3 states that under private information conditions, low authori-
tarian project managers will exhibit a greater tendency to continue a
failing project regardless of the extent of obedience pressure, whereas
hypothesis H4 states that under private information conditions, high
authoritarian project managers will exhibit a greater tendency to
continue a failing project when they are subject to the presence rather
thanabsenceof obedience pressure. Theresults inTable 2, Panel Areveal
that low authoritarian project managers escalate their commitment to
continue witha failing project under boththe absence (i.e. Cell 1=4.38)
and presence (i.e., Cell 3=2.36) of obedience pressure. A Bonferroni
t-test reveals that Cells 1 and 3 are not statistically signicant (pb0.11,
1-tailed). Taken together, these results support H3 and suggest that low
authoritarian project managers expressed their tendency to escalate
commitment to continue with a failing project under a condition of
private information, regardless of the extent of obedience pressure.
The results shown in Table 2, Panel A reveal that high authoritarian
project managers who are subject to obedience pressure (i.e. Cell 4)
escalated their commitment to continue with a failing project, while
high authoritarian project managers who were not subject to
obedience pressure (i.e., Cell 2) did not escalate their commitment
to continue with a failing project. As expected, the results presented in
Table 2, Panel B show that the difference between the mean
preference scores in Cell 2 (5.93) and Cell 4 (2.47) is statistically
signicant (mean difference=3.46, pb0.01, 1-tailed). These results
suggest that high authoritarian project managers tended to continue a
failing project only when they were subject to obedience pressure.
Table 1
Results of hypotheses H1 and H2.
Panel A: mean preference responses for individual across information availability
(public vs private) and obedience pressure (absent vs present) conditions
Information Obedience pressure
absent
Obedience pressure
present
Total
Public Mean=7.21 Mean=6.10 Mean=6.65
S.D. =1.663 S.D. =3.075 S.D. =2.525
n=28 n=29 n=57
Cell 1 Cell 2
Private Cell 3 Cell 4
Mean=5.03 Mean=2.45 Mean=3.74
S.D. =2.809 S.D. =1.526 S.D. =2.593
n=29 n=29 n=58
Total Mean=6.11 Mean=4.28 Mean=5.18
S.D. =2.547 S.D. =3.031 S.D. =2.937
n=57 n=58 n=115
Note: a lower value (5 or less) indicates a decision to continue a project.
Panel B: analysis of variance (ANOVA)
Source Sum of
squares
df Mean square F-value p-value
(1-tailed)
Information
(INFO)
244.656 1 244.656 43.413 0.01
Obedience
pressure (OP)
98.217 1 98.217 17.428 0.01
INFOOP 415.642 1 15.642 2.776 0.05
Error 625.542 111 5.636
R-squared=0.364; (adj. R-squared=0.347); F-value=21.153; pb0.01.
Panel C: multiple comparisons (Bonferroni t-statistics)
Mean difference Standard error p-value
(1-tailed)
Cells 1 and 2 1.11 0.629 0.24
Cells 1 and 3 2.18 0.629 0.01
Cells 1 and 4 4.77 0.629 0.01
Cells 2 and 3 1.07 0.623 0.27
Cells 2 and 4 3.66 0.623 0.01
Cells 3 and 4 2.59 0.623 0.01
Fig. 1. The inuence of information availability (private or public) and obedience
pressure (present or absent) on managers' preference responses.
189 V.K. Chong, I. Syarifuddin / Advances in Accounting, incorporating Advances in International Accounting 26 (2010) 185194
Taken together, these results support H4. Fig. 2 illustrates these
results.
5. Discussion and conclusions
Escalation of commitment tendency is one of the most widely
researched topics in management accounting. To date, prior research
has attempted to identify various factors that can trigger this
tendency (e.g. Harrell & Harrison, 1994; Kanodia et al., 1989; Schulz
& Cheng, 2002). Our study extends this line of research by proposing
that obedience pressure is a factor that can induce managers'
escalation behavior. A number of researchers have identied the
importance of these social issues in shaping the ways the agent and
the principal interact and behave in the organization (see e.g. DeZoort
& Lord, 1994; Lord & DeZoort, 2001). Apart from obedience pressure,
this study also examines whether the authoritarian personality of
project managers affects their decisions when faced with obedience
pressure.
The statistically signicant difference of the mean responses of
project managers who experience obedience pressure versus those
who do not, as stated in hypothesis H1, is consistent with previous
ndings (e.g. DeZoort & Lord, 1994; Lord & DeZoort, 2001). This result
reveals that the presence of inappropriate commands from the
superior articulated into obedience pressure is also found to be a
signicant determinant of the project managers' decision to escalate
their commitment to a failing project. Furthermore, consistent with
the theoretical prediction in H2, the nding suggests that the impact
of obedience pressure on project managers' escalation behavior is
more prominent in a situation in which the information about the
project's future unprotability is only privately available. Although to
some extent the willingness of project managers to escalate
commitment under a condition of public information results from
obedience pressure, the need to preserve their reputation coupled
with the possibility of public censure, which might occur as a result of
the information being publicly available, tend to reduce the impact of
this pressure. The latter also hints at the interesting notion whereby
project managers express a willingness to reach a compromise zone
(middle point) in order to simultaneously protect their reputation and
bow to obedience pressure imposed by higher authority. This nding
is in accordance with McNair (1991) and Lord and DeZoort (2001)
studies, which suggested that auditors tend to stay in a grey zone to
deal with conicting goals by trading off choices to obtain a neutral
position.
It is interesting to note that the linked theoretical predictions (e.g.
Hypotheses 3 and 4) surrounding the role of project managers'
authoritarianpersonality and information availability under a condition
of obedience pressure are also supported. The results show that low
authoritarian project managers exhibit a tendency to escalate commit-
ment regardless of the extent of obedience pressure (H3). This result
lends support to DeZoort and Lord (1994, p. 9) who argue that low
authoritarian individuals are reluctant to deal with situational and
interpersonal factors such as authority-based instruction unnecessar-
ily. Hence decisions made by low authoritarian individuals would be
heavily reliant on their autonomous feelings and values and what they
perceive to be correct and appropriate. They also tend to use self-
rationalizationinthe pursuit of their self-interest. Thus whenfacedwith
obedience pressure in public information conditions, they are not likely
to escalate their commitment since their self-rationalization suggests to
them that by doing so they will further damage their reputation.
However, when facing obedience pressure in a condition of private
information, their self-rationalization suggests that they use this
momentum, since the decision to go with the ow may protect their
reputation.
In addition, the results reveal that high authoritarian project
managers exhibit a tendency to escalate commitment when they are
subject to the presence rather than absence of obedience pressure
(H4). This result is consistent with Chenhall (1986), DeZoort and Lord
(1994) and Sanford (1956) contentions that high authoritarian
project managers are more responsive to obedience pressure than
low authoritarian project managers, since the former tend to prefer
relationships based on power and the inuence of authority and feel
less responsibility for actions performed. Thus these project managers
tend to be more agentic and place the obligation to obey an
instruction of a legitimate authority before their own self-interest,
i.e. the need to protect their own reputation.
A number of limitations should be noted in this study. First, this
study relied on an experimental method to examine the effects of
obedience pressure and availability of information variables on
managers' project evaluation decisions. The case materials used reect
a simplied business world situation. Therefore, care should be taken in
generalizing the ndings fromthis study. Second, most of the studies on
the escalation of commitment, which relied on agency theory as the
Table 2
Mean preference responses for individual across obedience pressure (present vs
absent) and authoritarianism (high vs low) under private information conditions,
including the related multiple comparisons.
Panel A: mean (standard deviation) for mean preference (n=56)
a
Obedience pressure Low authoritarianism High authoritarianism
Absent 4.38 5.93
(2.931) (2.492)
n=13 n=15
Cell 1 Cell 2
Present Cell 3 Cell 4
2.36 2.47
(1.629) (1.546)
n=11 n=17
Note: a lower value (5 or less) indicates a decision to continue a project.
Panel B: multiple comparisons (Bonferroni t-statistics)
Mean difference Standard error p-value
(1-tailed)
Cells 1 and 2 1.55 0.839 0.21
Cells 1 and 3 2.02 0.907 0.09
Cells 1 and 4 1.91 0.816 0.07
Cells 2 and 3 3.57 0.879 0.01
Cells 2 and 4 3.46 0.784 0.01
Cells 3 and 4 0.11 0.857 0.50
a
A total of 58 subjects were in the private information sub-sample. However, 2
subjects were excluded from the study for failure to complete some of the items in the
authoritarianism scale. This left the study with 56 useable responses for data analyses.
Fig. 2. The inuence of authoritarianism (high or low) and obedience pressure (present
or absent) on managers' preference responses under private information condition.
190 V.K. Chong, I. Syarifuddin / Advances in Accounting, incorporating Advances in International Accounting 26 (2010) 185194
basis for their theoretical framework, have considered only one simple
principal-agent model. This model has been criticized for its simplicity
and narrowness (Indjejikian, 1999; Noreen, 1988). Future research
should address more complex relationships involving multi-principals
and multi-agents. Notwithstanding the aforementioned limitations, this
study has improved our understanding of the relationship between
agency theory and obedience pressure, including the importance of the
personal attitudes of the project managers involved. More importantly,
this study has improved our knowledge of the factors that can trigger
project managers' commitment escalationbehaviors, whichcarries with
it important implications for the development of effective management
control systems.
Acknowledgements
We gratefully acknowledge the helpful comments and suggestions
from Graeme Harrison and Chong Lau, as well as seminar participants
at Australian National University, Macquarie University, 2007 AFAANZ
Conference and 2007 EAA Conference. This project was funded by a
research grant at the UWA Business School, The University of Western
Australia.
Appendix A
Cell 1: public information and obedience pressure absent The GlobalOne
Company
Background
You are a junior project manager with The GlobalOne Company.
Project managers gain a reputation as being highly talented when the
projects they initiate and manage are successful. Highly talented
project managers receive substantial economic and other benets, for
The GlobalOne Company is aware that the active market for highly
talented project managers exists in your industry. When a project
which is managed by a junior project manager fails, this damages the
individual's reputation, job security, and marketability.
So far, the projects which you have initiated and managed have
been successful. About a month ago, your growing reputation as
highly talented project manager stimulated another rm, the
NationalBest Corporation, to initiate informal discussions about
recruiting you to a more important position with a substantially
higher salary.
Investment policy
Last year, an independent consulting rm had recommended that
GlobalOne Company to establish a formal investment policy as follows:
Project managers should not discontinue more than 5 failing projects
in any calendar year.
The rational for such policy was to promote sound long-term
capital budgeting investment decisions and make project managers
be accountable for their actions. It is believed that a failing project
signals a bad investment decision.
Violationto this policy will leadtosevere disciplinary actions, suchas:
no entitlement for any annual salary increment and/or bonus;
prohibit to handle any projects for the next 5 years or involved in
investment decision-making processes;
diminish prospect of promotion or career advancement; and
possibility of employment contract termination.
The newly appointed Chief Executive Ofcer (CEO), Mr. John Smith,
however, believes that the above investment policy was too restrictive
andnarrowminded. Suchpolicydoes not bringout the best of our most
talented project managers! he claimed. He has decided to abolish such
policy immediately. He strongly encourages project managers to make
decision based on all relevant information available.
Investment project: Project K
In this calendar year, due to economics downturn, you have 5 failed
projects on hand. Therefore, you are now making a crucial decision on
another project namely Project K.
Four years ago, you initiated Project K, which you still manage,
with a machinery investment of $1,000,000. With a discount rate of
16%, projected annual net cash inows of $270,000, and an
expected salvage value of $50,000, Project K was predicted to
have a Net Present Value of $108,100 over its seven-year life.
Performance has been above expectations during the rst 4 years,
with annual net cash inows of $320,000. The most recent
projections indicate, however, that Project K's net cash inows
will sharply decline and be only $50,000 each year to the remaining
3 years of its life time.
Availability of information
Several days ago, GlobalOne Company made the above informa-
tion about Project K's expected future performance widely known to
others in your rm and industry, damaging your reputation, job
security and marketability.
Moreover, you also realize that after the investment policy has
been abolished, any decision related to whether this Project K should
be continued or discontinued is now fully in your hand.
You have two options available to you:
Option 1: continue Project K. The Present Value of its net annual
future cash inows is $144,327. (Project K's unprotable perfor-
mance will be known to others as it occurs during the 3 years
remaining until its completion. Option 1 could, therefore, cause
additional damage to your reputation, job security and marketabil-
ity each time more information about Project K's unprotability
becomes known).
Option 2: discontinue Project K. The Present Value of its machinery,
which will be sold for cash, is $177,500. (Project K's future unprot-
ability is already widely known and you believe this will cause the
NationalBest Corporation to withdraw from informal discussion in
progress. Option 2 will, however, avoid any additional future damage to
your reputation, job security and marketability due to the unprot-
ability of Project K).
Managerial decision
Will you continue (Option 1) or discontinue (Option 2) Project K?
(Please circle one of the numbers on the scale below)
Cell 2: public information and obedience pressure present The GlobalOne
Company
Background
You are a junior project manager with The GlobalOne Company.
Project managers gain a reputation as being highly talented when the
projects they initiate and manage are successful. Highly talented
project managers receive substantial economic and other benets, for
The GlobalOne Company is aware that the active market for highly
talented project managers exists in your industry. When a project
which is managed by a junior project manager fails, this damages the
individual's reputation, job security, and marketability.
191 V.K. Chong, I. Syarifuddin / Advances in Accounting, incorporating Advances in International Accounting 26 (2010) 185194
So far, the projects which you have initiated and managed have
been successful. About a month ago, your growing reputation as
highly talented project manager stimulated another rm, the
NationalBest Corporation, to initiate informal discussions about
recruiting you to a more important position with a substantially
higher salary.
Investment policy
Last year, an independent consulting rm had recommended that
Ovals Company to establish a formal investment policy as follows:
Project managers should not discontinue more than 5 failing
projects in any calendar year.
The rational for such policy was to promote sound long-term
capital budgeting investment decisions and make project managers
be accountable for their actions. It is believed that a failing project
signals a bad investment decision.
Violation to this policy will lead to severe disciplinary actions,
such as:
no entitlement for any annual salary increment and/or bonus;
prohibited to handle any projects for the next 5 years or involved in
investment decision-making processes;
diminish prospect of promotion or career advancement; and
possibility of employment contract termination.
The newly appointed Chief Executive Ofcer (CEO), Mr. John
Smith, was very keen with the idea. He commissioned a working party
immediately to examine this issue. Three months ago, this investment
policy was established.
Investment project: Project K
In this calendar year, due to economics downturn, you have 5 failed
projects on hand. Therefore, you are now making a crucial decision on
another project namely Project K.
Four years ago, you initiated Project K, which you still manage,
with a machinery investment of $1,000,000. With a discount rate of
16%, projected annual net cash inows of $270,000, and an expected
salvage value of $50,000, Project K was predicted to have a Net Present
Value of $108,100 over its seven-year life. Performance has been
above expectations during the rst 4 years, with annual net cash
inows of $320,000. The most recent projections indicate, however,
that Project K's net cash inows will sharply decline and be only
$50,000 each year to the remaining 3 years of its lifetime.
Availability of information
Several days ago, GlobalOne Company made the above informa-
tion about Project K's expected future performance widely known to
others in your rm and industry, damaging your reputation, job
security and marketability.
You have two options available to you:
Option 1: continue Project K. The Present Value of its net annual future
cash inows is $144,327. (Project K's unprotable performance will be
known to others as it occurs during the 3 years remaining until its
completion. Option 1 could, therefore, cause additional damage to
your reputation, job security and marketability each time more
information about Project K's unprotability becomes known).
Option 2: discontinue Project K. The Present Value of its machinery,
which will be sold for cash, is $177,500. (Project K's future
unprotability is already widely known and you believe this will
cause the NationalBest Corporation to withdraw from informal
discussion in progress. Option 2 will, however, avoid any additional
future damage to your reputation, job security and marketability due
to the unprotability of Project K. However, if you chose this Option 2,
it is likely that you will face with severe punishments since the
investment policy established requires you not to discontinue this
Project K).
Managerial decision
Will you continue (Option 1) or discontinue (Option 2) Project K?
(Please circle one of the numbers on the scale below)
Cell 3: private information and obedience pressure absent The GlobalOne
Company
Background
You are a junior project manager with The GlobalOne Company.
Project managers gain a reputation as being highly talented when the
projects they initiate and manage are successful. Highly talented
project managers receive substantial economic and other benets, for
The GlobalOne Company is aware that the active market for highly
talented project managers exists in your industry. When a project
which is managed by a junior project manager fails, this damages the
individual's reputation, job security, and marketability.
So far, the projects which you have initiated and managed have
beensuccessful. About a monthago, your growing reputationas highly
talented project manager stimulated another rm, the NationalBest
Corporation, to initiate informal discussions about recruiting you to a
more important position with a substantially higher salary.
Investment policy
Last year, an independent consulting rm had recommended that
GlobalOne Company to establish a formal investment policy as
follows:
Project managers should not discontinue more than 5 failing
projects in any calendar year.
The rational for such policy was to promote sound long-term
capital budgeting investment decisions and make project managers
be accountable for their actions. It is believed that a failing project
signals a bad investment decision.
Violation to this policy will lead to severe disciplinary actions, such
as:
no entitlement for any annual salary increment and/or bonus;
prohibit to handle any projects for the next 5 years or involved in
investment decision-making processes;
diminish prospect of promotion or career advancement; and
possibility of employment contract termination.
The newly appointed Chief Executive Ofcer (CEO), Mr. John
Smith, however, believes that the above investment policy was too
restrictive and narrow minded. Such policy does not bring out the
best of our most talented project managers! he claimed. He has
decided to abolish such policy immediately. He strongly encourages
project managers to make decision based on all relevant information
available.
Investment project: Project K
In this calendar year, due to economics downturn, you have 5 failed
projects on hand. Therefore, you are now making a crucial decision on
another project namely Project K.
Four years ago, you initiated Project K, which you still manage,
with a machinery investment of $1,000,000. With a discount rate of
192 V.K. Chong, I. Syarifuddin / Advances in Accounting, incorporating Advances in International Accounting 26 (2010) 185194
16%, projected annual net cash inows of $270,000, and an expected
salvage value of $50,000, Project K was predicted to have a Net Present
Value of $108,100 over its seven-year life. Performance has been
above expectations during the rst 4 years, with annual net cash
inows of $320,000. The most recent projections indicate, however,
that Project K's net cash inows will sharply decline and be only
$50,000 each year to the remaining 3 years of its life time.
Availability of information
This information about Project K's performance expectations,
which is known only to you as project manager, is not available to
others in your rm and industry.
You have two options available to you:
Option 1: continue Project K. The Present Value of its net annual future
cash inows is $144,327. (Project K's unprotable performance will
not be known to others in your rm or industry, including the
NationalBest Corporation, for the 3 years remaining until its comple-
tion. Option 1 will, therefore, delay until long after negotiations with
the Hackett Corporation are completed any possible damage to your
reputation, job security and marketability resulting from Project K's
performance).
Option 2: discontinue Project K. The Present Value of its machinery,
which will be sold for cash, is $177,500. (Option 2 will quickly
communicate to others that Project K is a failure, which immediately
damage your reputation, job security and marketability and cause the
NationalBest Corporation to withdrawfrom the informal negotiations
in progress).
Managerial decision
Will you continue (Option 1) or discontinue (Option 2) Project K?
(Please circle one of the numbers on the scale below)
Cell 4: private information and obedience pressure present The
GlobalOne Company
Background
You are a junior project manager with The GlobalOne Company.
Project managers gain a reputation as being highly talented when the
projects they initiate and manage are successful. Highly talented
project managers receive substantial economic and other benets, for
The GlobalOne Company is aware that the active market for highly
talented project managers exists in your industry. When a project
which is managed by a junior project manager fails, this damages the
individual's reputation, job security, and marketability.
So far, the projects whichyou have initiated and managed have been
successful. About a month ago, your growing reputation as highly
talented project manager stimulated another rm, the NationalBest
Corporation, to initiate informal discussions about recruiting you to a
more important position with a substantially higher salary.
Investment policy
Last year, an independent consulting rm had recommended that
Ovals Company to establish a formal investment policy as follows:
Project managers should not discontinue more than 5 failing
projects in any calendar year.
The rational for such policy was to promote sound long-term
capital budgeting investment decisions and make project managers
be accountable for their actions. It is believed that a failing project
signals a bad investment decision.
Violation to this policy will lead to severe disciplinary actions, such
as:
no entitlement for any annual salary increment and/or bonus;
prohibited to handle any projects for the next 5 years or involved in
investment decision-making processes;
diminish prospect of promotion or career advancement; and
possibility of employment contract termination.
The newly appointed Chief Executive Ofcer (CEO), Mr. John
Smith, was very keen with the idea. He commissioned a working party
immediately to examine this issue. Three months ago, this investment
policy was established.
Investment project: Project K
In this calendar year, due to economics downturn, you have 5 failed
projects on hand. Therefore, you are now making a crucial decision on
another project namely Project K.
Four years ago, you initiated Project K, which you still manage,
with a machinery investment of $1,000,000. With a discount rate of
16%, projected annual net cash inows of $270,000, and an expected
salvage value of $50,000, Project K was predicted to have a Net Present
Value of $108,100 over its seven-year life. Performance has been
above expectations during the rst 4 years, with annual net cash
inows of $320,000. As project manager, you possess information
which indicates Project K's net cash inows will sharply decline and
be only $50,000 each year for the remaining 3 years of its lifetime.
Availability of information
This information about Project K's performance expectations, which
is known only to you as project manager, is not available to others in
your rm and industry.
You have two options available to you:
Option 1: continue Project K. The Present Value of its net annual future
cash inows is $144,327. (Project K's unprotable performance will be
known to others as it occurs during the 3 years remaining until its
completion. Option 1 could, therefore, cause additional damage to your
reputation, job security and marketability each time more information
about Project K's unprotability becomes known).
Option 2: discontinue Project K. The Present Value of its machinery,
which will be sold for cash, is $177,500. (Project K's future unprot-
ability is already widely known and you believe this will cause the
NationalBest Corporation to withdraw from informal discussion in
progress. Option 2 will, however, avoid any additional future damage to
your reputation, job security and marketability due to the unprot-
ability of Project K. However, if you chose this Option 2, it is likely that
you will face with severe punishments since the investment policy
established requires you not to discontinue this Project K).
Managerial decision
Will you continue (Option 1) or discontinue (Option 2) Project K?
(Please circle one of the numbers on the scale below)
193 V.K. Chong, I. Syarifuddin / Advances in Accounting, incorporating Advances in International Accounting 26 (2010) 185194
Appendix B. Authoritarianism scale
Instruction: please state your agreement or disagreement with the
following statements by circling one of the numbers on the scale
below. You are asked to select a number (17) which reects your
opinion.
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Strongly
disagree
Strongly
Agree
1. The Police are pretty trustworthy. 1 2 3 4 5 6 7
2. A Person should obey only those laws
that seem reasonable.
1 2 3 4 5 6 7
3. The Army develops initiative. 1 2 3 4 5 6 7
4. It is reasonable to say that as a rule,
teachers work in the best interests of
their students.
1 2 3 4 5 6 7
5. The Police are quite unfair in their
treatment of certain groups of society.
1 2 3 4 5 6 7
6. The law is the embodiment of justice
and equality.
1 2 3 4 5 6 7
7. I disagree with what the Army stands
for.
1 2 3 4 5 6 7
8. The Police have a hard job which they
carry out well.
1 2 3 4 5 6 7
9. Laws are so often made for the benet of
small, selsh groups that one cannot
respect the law.
1 2 3 4 5 6 7
10. The Army reduces people to robots. 1 2 3 4 5 6 7
11. Teachers do not respect the individual
personalities of the students.
1 2 3 4 5 6 7
12. Policemen like to bully people. 1 2 3 4 5 6 7
13. Teachers are usually ready to take
seriously whatever students feel earnest
about.
1 2 3 4 5 6 7
14. Obedience to the lawconstitutes a value
indicative of the highest citizenship.
1 2 3 4 5 6 7
15. In this day and age students should not
be expected to call a teacher Ma'am or
Sir.
1 2 3 4 5 6 7
16. People should feel proud to serve in the
Army.
1 2 3 4 5 6 7
194 V.K. Chong, I. Syarifuddin / Advances in Accounting, incorporating Advances in International Accounting 26 (2010) 185194