Anne M. McCarthy

Reinvestment decisions by entrepreneurs: Rational decision-making or escalation of commitment?

Abstract Among the most important decisions made by entrepreneurs are those relating to whether to expand, maintain, or contract their businesses. We would expect these major commitments to be based upon expectations about future performance; these expectations, in turn, would be heavily influenced by performance to date. Thus, we might presume that businesses that have been receiving favorable feedback from the marketplace would be more likely to expand, and those receiving negative feedback would be more likely to contract. Ongoing research in decision-making suggests that psychological processes may play a role in influencing these decisions. Under certain conditions entrepreneurs may be influenced by a phenomenon termed “escalation of commitment.” This may lead entrepreneurs to decide to expand the asset bases of their firms, regardless of feedback from the marketplace. The literature on escalation of commitment suggests that, under certain conditions, decision-makers who make an initial decision become overly committed to the original choice and then subsequently make decisions biased by psychological commitment. Previous research (most of which has been conducted in laboratory settings) suggests that escalation bias is more likely to occur (1) if entrepreneurs have started their firms (rather than purchased them): (2) if entrepreneurs have partners; (3) if entrepreneurs expect to use their skills in the new business; and (4) if entrepreneurs are overconfident (that is, expected to do substantially better than others in the same kinds of business). It is also expected that these “escalation predictors” will have a relatively greater influence when feedback is negative than when it is positive: the negative feedback seems to invoke a self-justification process. It is also hypothesized that the influence of these predictors will be less in the third year of a business than in the second year. Finally, it is expected that these psychological influences will help to provide systematic explanation of reinvestment decisions over and beyond what one could predict based upon financial feedback. The hypotheses were tested using data from a longitudinal study involving 1112 firms. It was found that entrepreneurs who had started their firms and those who had expressed substantial over-confidence were significantly more likely to make the decision to expand. The hypotheses that those who had partners and those who expected to apply their skills would be more likely to expand were not supported. Furthermore, and consistent with previous research, these psychological escalation predictors seemed to exert a greater influence when feedback from the marketplace was negative. As expected, there was a declining influence in the third year as compared with the second. Consistent with the prior literature and the hypotheses, these psychological predictors did show a small, but systematic influence upon reinvestment decisions. Decisions to expand or contract a business are not necessarily good or bad; however, it is important that entrepreneurs be aware of the factors influencing their decisions. Entrepreneurs should recognize that the escalation bias tendency is likely to occur. Seeking independent opinions from advisors who do not feel as much personal responsibility for the original decision to start may lead to more objective evaluation of alternatives. Advisors should also realize that the inclination to escalate exists and is natural; they may thereby be able to guard against the tendency to be swept along by the entrepreneurs enthusiasm and propensity to escalate. Entrepreneurs and their advisors (as well as researchers) should recognize that important entrepreneurial decisions are often influenced by psychological as well as economic factors. This awareness should enable entrepreneurs to make more rational decisions.

Commitment to Innovation: The Impact of Top Management Team Characteristics

Many organizational and environmental factors influence a firm’s commitment to innovation. Among the organizational factors, the perceptual lens of the top management team and the team’s dynamics are posited to have a significant direct impact on the firm’s commitment to innovation. This study revisits the classic arguments of Hayes and Abernathy and empirically examines several of their propositions. The results clearly indicate a positive relationship between the technical orientation of the TMT/CEO and above-average R&D intensity. This effect remains even after controlling for the impact of performance in prior periods and firm diversification. Overall, these results suggest that establishing a high level of commitment to innovation will be promoted or impeded in many organizations because of the predispositions of the CEO and top management team.

Training Tomorrow's Leaders: Enhancing the Emotional Intelligence of Business Graduates

Abstract Educational institutions have traditionally focused primarily on the importance of IQ with less attention given to other types of intelligence. Yet many reserchers are begining to argue that intrapersonal and interpersonal competencies, or emotional intelligence, may be more important for success in life than IQ. It is important, then, for business schools to consider ways to incorporare emotional intelligence skills into each students “toolbox” for enhanced career success. This article reviews the developing literature on emotional intelligence and discusses a model for incorporating emotional intelligence into the curriculum through the use of assessment tools and experiential exercises.

Community Service Learning Increases Communication Skills across the Business Curriculum.

Community service learning offers a unique and rewarding way for business students to reinforce communication capabilities while developing lifelong career and social skills. This article defines community service learning, dis cusses its importance to business as well as higher education, and describes three community service learning projects. Students in these projects taught elementary students, designed a computer system for a community nonprofit, and developed accounting systems for university divisions. In doing so, they enhanced their understanding of classroom theories and communication skills through service-learning.

Development and Construct Validity of Scores on the Community Service Attitudes Scale

This study reports the multistage development of the Community Service Attitudes Scale (CSAS), an instrument for measuring college students’attitudes about community service. The CSAS was developed based on Schwartz’s helping behavior model. Scores on the scales of the CSAS yielded strong reliability evidence (coefficient alphas ranging from .72 to .93). Principal components analysis yielded results consistent with the Schwartz model. In addition, the CSAS scale scores were positively correlated with gender, college major, community service experience, and intentions to engage in community service. The CSAS will be useful to researchers for conducting further research on the effects of service learning and community service experiences for students.

Student attitudes toward service-learning : Implications for implementation

Are there student-based barriers that instructors must overcome in integrating service-learning into their courses? This article seeks to provide a starting point for implementing service-learning by describing student attitudes toward community service. The constructs of self-efficacy, helping behavior, and cost/benefit are used to assess student perceptions of community service and service-learning. Implications for structuring service-learning projects and coordinating service-learning initiatives at the college and university levels are discussed.

Changes in the Time Allocation Patterns of Entrepreneurs

Organizational life cycle research seeks to explain changes in firm characteristics as the firm grows and matures. Unlike most life cycle research this paper focuses on changes that occur during the firms crucial early stages. Specifically, we examine differences in an entrepreneurs time allocation as the young firm moves to later stages. This issue is important for two reasons. First, time is one of the entrepreneurs most valuable resources. Second, this approach fits with the growing popularity of behavioral research in entrepreneurship. Nine hypotheses are tested using data from a three-year, large-scale, nationwide survey of entrepreneurs.

E‐commerce and retail property in the UK and USA

Presents findings from separate research projects conducted in the UK and the USA on the impact of e‐commerce on retailers and retail property. Examines differences between UK and US retailers along several dimensions: Internet strategies, perceptions of the Internet, barriers to e‐commerce growth, and future space requirements. Overall, findings indicate that UK and US retailers have similar attitudes about e‐commerce. Specifically, retailers in both samples perceive little threat or impact from e‐commerce. Second, barriers to e‐commerce growth are similar for UK and US retailers and include fulfillment and security issues. Third, UK and US retailers indicate that their retail space needs will remain the same or increase in the short term, despite the threat of e‐commerce. Finally, both sets of retailers believe that entertainment is an important strategy if shopping centers are to remain viable.

Women and men politicians: are some of the best leaders dissatisfied?

Today’s political arena calls for strong leadership. As technology facilitates information sharing, constituents are becoming more vocal in governmental affairs. Legislators are now expected to be transformational leaders who envision the future needs of constituents and are capable of negotiating, mediating, and championing these causes in an effective and credible manner. Using transformational leadership theory, this article examines the perceived leadership styles among state‐level legislators in the United States as well as the relationship between leadership style and perceptions of extra effort, effectiveness, and satisfaction. Leaders in this study described their style as transformational and perceived high extra effort from their followers. Yet, compared to women, male politicians had more positive perceptions of effectiveness and satisfaction with their leadership style. This substantiates research that women in male‐dominated careers report less self‐confidence. Future research might verify th...