The impact of authentic leadership and adverse selection conditions on escalation of commitment, RP Roberts

Tags: Authentic Leadership, project manager, Adverse Selection, cash inflows, Escalation of Commitment, cash flows, Project B, continuation, Williams Company, conditions, project managers, difficult decisions, Jones Corporation, project management, the project, ethical decision, leadership style, authentic leader, immediate supervisor
Content: The Impact of Authentic Leadership and Adverse Selection Conditions on Escalation of Commitment Ross P Roberts Committee Members George Tsakumis, Chair Anna Cianci Christopher Agoglia Barbara Grein Edward Werner Jonathan Zeigert
i TABLE OF CONTENTS LIST OF TABLES ...........................................................................................................iv LIST OF FIGURES .........................................................................................................v ABSTRACT ..................................................................................................................vi CHAPTER 1: INTRODUCTION ....................................................................................1 1.1 Introduction..............................................................................................1 1.2 Purpose of the Study and Proposed Research Question ..........................2 1.3 Authentic Leadership ...............................................................................3 1.4 Overview of the Study .............................................................................4 CHAPTER 2: LITERATURE REVIEW .........................................................................7 2.1 Introduction..............................................................................................7 2.2 Escalation of Commitment ......................................................................7 2.2.1 Escalation of Commitment and Adverse Selection Conditions...7 2.2.2 Reducing Escalation of Commitment ..........................................9 2.3 Authentic Leadership ...............................................................................12 2.3.1 Authentic Leadership and Social Identification...........................15 2.3.2 Authentic Leadership in the Presence of Adverse Selection Conditions ....................................................................................18 2.3.3 Authentic Leadership and Ethical Decision Making ...................19 CHAPTER 3: HYPOTHESES AND METHODLOGY..................................................23 3.1 Introduction..............................................................................................23 3.2 Hypotheses ...............................................................................................23 3.2.1 Authentic Leadership and Social Identity....................................23
ii 3.2.2 Authentic Leadership and Escalation of Commitment ................24 3.2.3 The Mitigating Effect of Authentic Leadership in the Presence of Adverse Selection Conditions......................................................27 3.3 Methodology ............................................................................................30 3.3.1 Overview......................................................................................30 3.3.2 Participants...................................................................................31 3.3.3 Experimental Task .......................................................................32 3.3.4 Dependent Variable .....................................................................33 3.3.5 independent variables .................................................................34 3.3.5.1 Adverse Selection Conditions..........................................34 3.3.5.2 Authentic Leadership .......................................................35 3.3.6 Additional Variables and Manipulation Checks ..........................36 3.3.7 Conclusions..................................................................................37 CHAPTER 4: RESULTS .................................................................................................38 4.1 Introduction..............................................................................................38 4.2 Description of Participants.......................................................................38 4.3 Manipulation Checks ...............................................................................39 4.3.1 Manipulation Check for Adverse Selection Conditions ..............39 4.3.2 Manipulation Check for Authentic Leadership............................39 4.4 Testing of Statistical Assumptions...........................................................40 4.5 Hypothesis Testing...................................................................................41 4.5.1 Introduction..................................................................................41
iii 4.5.2 Authentic Leadership and Organizational Identification (Hypothesis One) .........................................................................42 4.5.3 Authentic Leadership and Escalation of Commitment (Hypothesis Two).........................................................................43 4.5.4 The Mitigating Effect of Authentic Leadership (Hypothesis Three)........................................................................44 4.5.5 Summary of Hypothesis Testing..................................................46 4.6 Supplementary Analyses..........................................................................46 4.6.1 Social Identity as a Mediator .......................................................46 4.6.2 Interaction between Authentic Leadership and Perceived Ethicalness of the Project Continuation Decision........................47 CHAPTER 5: CONCLUSIONS, LIMITATIONS, AND IMPLICATIONS...................50 5.1 Introduction..............................................................................................50 5.2 Conclusions..............................................................................................50 5.3 Limitations ...............................................................................................53 5.4 Implications..............................................................................................54 REFERENCES ................................................................................................................56 FIGURES .........................................................................................................................62 APPENDIX: EXPERIMENTAL INSTRUMENT ..........................................................66 TABLES ..........................................................................................................................79
iv LIST OF TABLES 1. demographic data ...............................................................................................79 2. Testing of Hypothesis One...................................................................................80 3. Testing of Hypothesis Two ..................................................................................81 4. Testing of Hypothesis Three ................................................................................82 5. Testing of Interaction between Authentic Leadership and Perception of Ethicalness of Continuation Decision ..................................................................83
v LIST OF FIGURES 1. Proposed Framework of Authentic Leadership Affecting Follower Behavior ....62 2. Proposed Framework of Authentic Leadership Leading to Moral-Emulation ....63 3. Proposed Framework for Authentic Leadership to Reduce Escalation of Commitment ........................................................................................................64 4. Proposed Diagram of Interaction Effect in Hypothesis Three.............................65
vi The Impact of Authentic Leadership and Adverse Selection Conditions on Escalation of Commitment Abstract The objective of this study is to examine the impact of authentic leadership on escalation of commitment under the presence or absence of adverse selection conditions (i.e., the presence of motive and opportunity). Prior research documents that when adverse selection conditions exist managers are more likely to behave in their own interest and continue failing projects. Whereas prior research has mostly focused on economic factors as methods to moderate the effects of adverse selection conditions, this study will examine the role of leadership style in curtailing escalation behavior. Authentic leadership is a leadership style that allows the leader to transparently display an internalized moral perspective, balanced processing, and self-awareness. Utilizing social identity theory, I hypothesize that authentic leadership will reduce escalation of commitment by increasing the managers' propensity to emulate the moral behavior of an authentic leader. In order to examine the effect of authentic leadership I conduct a study in which authentic leadership and adverse selection conditions are manipulated to discover their impact on escalation of commitment. The utilizes a 3x2 design where authentic leadership is manipulated as low, neutral, or high and adverse selection conditions are manipulated as present or not present. Consistent with the predictions I find that authentic leadership mitigates the effect of adverse selection conditions on escalation of behavior. Specifically, when adverse selection conditions are present, Project Managers supervised by an authentic leader are less likely to continue a failing project. By identifying a personal interaction variable (authentic leadership) that may mitigate the effects of adverse selection conditions, I can provide organizations with
vii additional methods to reduce unethical decision making, specifically the continuing of failing projects.
1 CHAPTER 1: INTRODUCTION 1.1 Introduction This study examines whether the leadership style of an immediate supervisor can mitigate escalation of commitment in the presence of adverse selection conditions. Adverse selection conditions exist when the manager has both motive and opportunity to make a self-serving decision that is not in the best interest of the organization. Escalation of commitment occurs when managers make a decision to continue a project despite new information suggesting that continuing the commitment to the project is not in the best interest of the organization (Kanodia et al., 1989). Such decisions result in organizations experiencing a reduction in return on capital that can be avoided if the project is discontinued. Therefore, organizations can benefit from the implementation of methods that reduce the likelihood that project managers will continue to invest money in a failing project. Prior research has found that adverse selection conditions may result in a higher likelihood of project managers continuing failing projects (Harrell & Harrison, 1993; Harrison & Harrell, 1994; Rutledge & Karim, 1999; Booth & Schulz, 2004). I posit that the presence of motive and opportunity create ethical tension for managers' project continuation decisions, thereby making the escalation of commitment decision an ethical one within this setting. Authentic leadership has been proposed to increase the ethical correctness of decision making in followers (Hannah et al., 2004); therefore I propose that authentic leadership increases the likelihood of morally correct alternatives being chosen during ethical decision making and in turn reduces escalation of commitment, especially when adverse selection conditions are in place.
2 1.2 Purpose of the Study and Proposed Research Question Prior accounting research has examined several ways to mitigate escalation of commitment to a project (Dzuranin, 2008; Booth & Schulz, 2004; Kadous & Sedor, 2004; Cheng et al., 2003; Tan & Yates, 2002; Rutledge & Karim, 1999; Ghosh, 1997). Only two of these studies (Booth & Schulz, 2004; Rutledge & Karim, 1999) have directly examined the ethical aspect of the project continuation decision, even though the majority of these studies position participants in a situation where personal advancement conflicts with the organization's wellbeing. Specifically, Rutledge and Karim (1999) found that participants with higher moral reasoning levels (an individual difference characteristic) were less likely to continue a failing project, particularly when adverse selection conditions were present. Booth and Schulz (2004) found that, with or without adverse selection conditions present, increased strength of the ethical environment on an organizational level decreased the likelihood that participants would continue a failing project. Booth and Schulz's results are consistent with the notion that organizational ethical climate significantly impacts ethical decision making intentions and behavior (O'Fallon & Butterfield, 2005). However, their results do not suggest that the organizational ethical climate has a stronger impact in the presence of adverse selection conditions, which is the condition under which escalation of commitment is most likely among managers (Harrell & Harrison, 1993; Harrison & Harrell, 1994). I suggest that the organizational level variable manipulated by Booth and Schulz may be too distant from the manager to counter the effect of adverse selection conditions, whereas a personal interaction variable, which has a stronger, more direct impact (Weaver et al., 2005), may be able to produce such a counter effect. Thus, the question I seek to answer is if a personal interaction variable, specifically the style of leadership, can promote an increased level of moral
3 reasoning that could potentially mitigate the escalation of commitment problem in the presence of adverse selection conditions. The leadership style of one's supervisor may be related to the quality of one's ethical decision making as prior research documents a positive effect of manager's influence (Jones & Kavanagh, 1996) and employee's perception of supervisors (Sims & Keon, 1999) on ethical decision making intention and behavior. Consistent with and extending this research, I suggest that authentic leadership will positively affect ethical decision making, and in particular escalation of commitment. 1.3 Authentic Leadership Authentic leadership is a style of leadership that has a focus on moral correctness. Walumbwa et al. (2008) define authentic leadership "as a pattern of leader behavior that draws upon and promotes both positive psychological capacities and a positive ethical climate, to foster greater self-awareness, an internalized moral perspective, balanced processing of information, and relational transparency on the part of leaders working with followers, fostering positive selfdevelopment" (p. 94). Authentic leadership includes both ethical and transformational components. The transformational components allow the leader to show individualized consideration, inspire motivation, and stimulate intellectual activity for subordinates. The ethical component is further specified as an internalized moral perspective, which equates to a leader's self-regulation being guided by moral standards and values. Internalized moral perspective along with relational transparency, which refers to the leader's penchant to share true thoughts and feelings, allows the manager to view the supervisor behaving ethically, and therefore should invoke the imitation of the supervisor's ethical behavior. Two proposed follower outcomes resulting from authentic leadership are greater trust in the leader and activation of the follower's
4 moral working self-concept (Hannah et al., 2005), which both should lead to greater quality in the ethical decision making of the follower (Brown & Trevino, 2006). In an attempt to show how the components of authentic leadership affect follower performance, Avolio et al. (2004) introduce a framework to illustrate authentic leadership's impact on followers' attitudes and behaviors. They suggest authentic leaders can increase followers' social identification by creating a deeper sense of high moral values and expressing high levels of honesty and integrity in their dealings with followers. I suggest that the path by which authentic leadership should affect ethical decision making is through social identification. This concept agrees with models of ethical decision-making behavior in organizations that are rooted in social identity (Westerman et al., 2007; Jones, 1991; Trevino, 1986). That is, authentic leadership behavior should allow a manager to influence the ethical decision-making of a subordinate by displaying high moral values and high levels of integrity that will become social norms to the subordinate. Based on this research, I expect the likelihood of subordinates continuing a failing project will decrease when authentic leadership is present. 1.4 Overview of the Study For this study, I used experienced professionals, enrolled in part-time and full-time M.B.A. programs. The ideal subject possesses some experience in making decisions that affect an organization's well-being. They were asked to assume the role of a project manager in a hypothetical company faced with a project continuation decision for a project they initiated. Participants were given the investment amount along with up-to-date performance data and information predicting future cash flows and a salvage value for the project if discontinued immediately. Participants were then asked to make a decision whether or not to continue the project. Finally, they answered some background and manipulation check questions.
5 The experiment utilizes a 3x2 ANOVA design. The first independent variable is the presence of adverse selection conditions (yes or no). Following Harrison and Harrell (1993), motive is manipulated by an existing outside job offer that hinges on the manager's reputation as a successful project manager and opportunity is manipulated by whether or not the predicted future cash flows are privately-held information. The second independent variable is leadership style (high, neutral, or low authentic). Those participants in the high authentic leadership condition received a statement describing interactions with their immediate supervisor that depict the immediate supervisor as an authentic leader. Specifically, the supervisor is described as one who exhibits self-awareness, relational transparency, balanced processing, and an internalized moral perspective (Avolio & Walumbwa, 2006; Walumbwa et al., 2008). The participants in the low authentic leadership condition received a description of their supervisor that contained evidence that the supervisor displays qualities opposite of those of an authentic leader. Participants in the neutral condition received a generic description of the supervisor that does not address the authentic leadership dimensions. This study contributes to the literature in at least three ways. First, I provide evidence that a personal interaction variable, such as leadership style, can reduce the likelihood that managers continue failing projects. While prior research has examined the effect of moral reasoning (an individual difference characteristic) on escalation of commitment, this study examines an external personal interaction factor (authentic leadership) that may be imposed in order to increase ethical decision making. Second, the study adds to the literature on economic decision making by indicating that leadership style of the immediate supervisor mitigates the effect of self-interest as depicted by agency theory. Finally, the study provides evidence that authentic leadership can increase organizational identity among followers.
6 The remainder of this paper is organized as follows. First, I review the relevant literature. Second, hypotheses are developed and the research method is described. Third, the analysis is outlined. Finally, I summarize the study and discuss its implications.
7 CHAPTER 2: LITERATURE REVIEW 2.1 Introduction This chapter reviews several areas of literature to provide a framework for studying the mitigating effect of authentic leadership on a project manager's likelihood to continue a failing project when adverse selection conditions are present. The second section of this chapter examines the relevant escalation of commitment literature and its link to adverse selection conditions. The third section reviews the authentic leadership literature and its relevance to ethical decision making. 2.2 Escalation of Commitment Escalation of commitment was conceived as a problem of resource allocation under uncertain conditions (Donahue, 2006). Kanodia et al. (1989) explain escalation of commitment behavior using a model of managerial labor markets in which opportunity allows managers to increase their reputation and opportunities in the labor market by continuing a failing project. This opportunity allows project managers to take action that will be costly to their organization by wasting resources that could be used in a more profitable manner. It is to the benefit of organizations to find ways in which to prevent escalation of commitment by managers in order to avoid the squandering of capital expenditures on projects whose returns will not exceed those of other investment options. 2.2.1 Escalation of Commitment and Adverse Selection Conditions Experimental studies test the Kanodia et al. (1989) model's accuracy regarding motive, reputation effects, and opportunity (Harrison & Harrell, 1993; Harrell & Harrison, 1994). Harrison & Harrell use a 4 (within subject) x 2 (between subject) design to examine if the presence of adverse selection conditions increased the likelihood of escalation of commitment
8 behavior. Using agency theory as a theoretical basis, Harrison & Harrell (1993) find that when adverse selection conditions exist, the tendency to continue a failing project is higher. Agency theory views the firm as a set of contracts in which one party (the principal) delegates work to another party (the agent), who performs that work (Eisenhardt 1989). In addition, agency theory assumes that individuals are motivated to make decisions that maximize their own economic interests. The principal's interests are assumed to be in line with those of the firm (i.e., profit maximization), while the agent's interests may or may not be in line with the interests of the firm. Two agency theory concepts, motive (goal conflict) and opportunity (information asymmetry), are used to describe situations in which the agent will neglect the firm's interests in favor of his/her own. When the agent's interests conflict with those of the principal, the agent is said to have motive. That is, the agent is motivated to reach decisions that conflict with the profitmaximizing interests of the principal. To act on this motive, the agent must have opportunity. The extent to which information is available to both the principal and the agent can help determine whether the agent has the opportunity to make decisions that conflict with the interests of the principal. If opportunity is non-existent (i.e., the principal and agent possess the same information), the principal is able to monitor whether the agent is acting in accordance with the interests of the firm. Therefore, the principal can ensure that the agent's decisions are in line with the firm's interests. Conversely, when opportunity exists (i.e., the agent possesses private information), the principal is unable to completely monitor the agent's decisions and this provides the agent with an opportunity to shirk or to make decisions that conflict with the overall interests of the firm.
9 Adverse selection conditions exist when both motive and opportunity are present. In this situation, the agent is expected to reach decisions that are contrary to the interests of the firm (Eisenhardt 1989). Agency theory posits that adverse selection conditions influence an agent to act in his/her self-interest and make decisions that are contrary to the firm's interests. Therefore, an agent who experiences only one of the conditions would not be expected to behave differently than an agent who experiences neither of these conditions. Harrison & Harrell (1993) operationalize these adverse selection conditions as the project manager's possession of privately held information about the future performance of the project (opportunity) and the existence of a job offer from an organization outside of the current employer, which is dependent on successful project management (motive). Harrell & Harrison (1994) further investigate the impact of adverse selection conditions on escalation by manipulating the two adverse selection conditions separately. Using agency theory to explain why both conditions have to exist for escalation tendencies to increase, Harrell & Harrison find that the likelihood of continue a failing project is higher when both motive and opportunity are present, as opposed to when neither or only one condition is present. Given the results of the work of Harrison and Harrell (1993, 1994), the current study will confirm managers who are presented with adverse selection conditions will have a significantly higher likelihood of continuing a failing project than those project managers who do not have the motive and opportunity to continue the project. The current study replicates this previously observed effect as a prerequisite to investigating the role that authentic leadership plays in moderating it. 2.2.2 Reducing Escalation of Commitment Prior research has examined methods to reduce escalation tendencies including economic information framing (Chow et al., 1997), control procedures (Ghosh, 1997), budget goals
10 (Ruchala, 1999; Tan & Yates, 2002), hurdle rates (Cheng et al., 2003), mental representations (Kadous & Sedor, 2004), and the use of real options in the budgeting process (Denison, 2009). These studies were somewhat successful in moderating the effect of adverse selection conditions. Further, they all sought to test variables following the agency theory view, which suggests that a project manager will always act in his/her best interest without concern for ethical correctness (Eisenhardt, 1989). In addition, these prior studies all ignore the possibility that the manager's escalation decision has an ethical aspect when adverse selection conditions are present. Opponents of the `pure' agency theory view to economic decision-making argue that some people will constrain self-interest behavior due to their own ethical sensibility or conscience (Noreen, 1988). Employing this argument, Rutledge and Karim (1999) examine whether moral reasoning is related to the escalation tendency. They measure participants' moral reasoning levels using the Sociomoral Reflection Objective Measure and find that those participants with high moral reasoning levels have a significantly lower likelihood of continuing a failing project when adverse selection conditions are present. These results imply that the escalation of commitment decision has ethical implications in the presence of adverse selection conditions. Utilizing the Rutledge and Karim findings as a catalyst, Booth and Schulz (2004) conducted a study examining whether an organization's ethical climate will reduce project managers' tendency to continue a failing project. Booth and Schulz investigated whether ethical considerations involved in the project continuation decision are strictly attributes of individuals, or whether these considerations were also related to attributes of corporate culture. The findings of the Booth and Schulz study suggest that a strong organizational ethical climate can reduce project managers' likelihood to continue failing projects, but the proposition that this effect
11 would be stronger under adverse selection conditions was not supported. Therefore, Booth and Schulz support the notion that external factors can mitigate the escalation of commitment phenomenon, but that a strong ethical environment does not appear to have a strong or direct enough effect to interact with and mitigate the presence of adverse selection conditions. Since escalation of commitment is more likely to occur when adverse selection conditions are present, it would be beneficial to discover factors that would have a greater impact on escalation tendencies under adverse selection conditions and Booth and Schulz's results imply that an organizational external factor may not accomplish this goal. Prior research on ethical decision making in organizations has found mixed results when testing the effect of organizational ethical climate on ethical behavior intentions. For example, O'Fallon and Butterfield (2005) review the empirical literature on ethical decision making and determine that while some literature has found certain dimensions of ethical climate have a positive effect on ethical decision making others have found no influence at all. DeConinck and Lewis (1997) test an ethical climate's effect on intentions to behave ethically by separately testing factors that influence the ethical environment of an organization, such as having a formal Code of Ethics and rewards and sanctions in place. They conclude that an ethical environment does not have a direct effect on ethical intentions. Barnett and Vaicys (2000) also conclude that ethical climate does not have a direct effect on ethical behavioral intentions, after conducting a study that measured employees' perceptions of their organizations' ethical climates to see if those perceptions predicted the ethical tendencies of the employees. In the context of escalation of commitment, Booth and Schulz (2004) attempt to uncover the nature of the relationship between organizational ethical climate and ethical decision making, but the manipulation comingles the presence of a code of ethics along with a reward system,
12 public industry sanctions, peer group influence, missions and values, and manager observation thereby possibly weakening or countering the effects of such a climate. Given that the mere existence of external organizational imposition of a code of ethics or sanctions does not deter unethical behavior, the current study suggests that the internalization of ethical company norms by the individual is required to deter unethical behavior. It employs social identity theory, which states that individuals will desire to identify with the norms of a group, especially those norms interpreted as positive, to motivate the hypothesis and apply it to escalation of commitment (Brewer 1991). Since social identity theory suggests that individuals will tend to behave in a manner that endorses positive group norms, then project managers should be willing to act morally once ethical behavior is established as a norm by the supervisor. The current study examines whether an organization can influence managers to identify with social norms within the organization and, in this manner, increase moral reasoning levels and moderate the effects of adverse selection conditions. Specifically it is proposed that authentic leadership enhances the influence an organization has on managers' moral reasoning levels. 2.3 Authentic Leadership Authentic leadership theory was first established by the thought of an authentic leader being one who is true to oneself (Harter, 2002). As the theory developed, it was proposed that authentic leadership is a multidimensional construct (Avolio et al., 2004; Avolio & Luthans, 2006; Avolio & Walumbwa, 2006; Gardner et al., 2005; Luthans & Avolio, 2003). Luthans and Avolio (2003) defined authentic leadership as a process that draws from both positive psychological capacities and a highly developed organizational context, which results in both greater self-awareness and self-regulated positive behaviors on the part of leaders and associates, fostering positive self-development. Luthans and Avolio along with others (Avolio and Gardner,
13 2005; May et al., 2003) argue that authentic leadership includes a positive moral perspective characterized by high ethical standards that guide decision making and behavior. In an attempt to incorporate the definitions above, Walumbwa et al. (2008) conducted a study using confirmatory factor analysis that resulted in an authentic leadership construct that is made of four dimensions: self-awareness, relational transparency, balanced processing, internalized moral perspective. They define authentic leadership as "a pattern of leader behavior that draws upon and promotes both positive psychological capacities and a positive ethical climate, to foster: a) greater self-awareness, b) an internalized moral perspective, c) balanced processing of information, and d) relational transparency on the part of leaders working with followers, fostering positive self-development"(p. 94). Self-awareness refers to possessing an understanding of one's strengths and weaknesses, as well as gaining insight into the self through exposure to others and being cognizant of one's impact on others. Higher levels of selfawareness promote self-understanding of values, ideals and beliefs. Internalized moral perspective refers to an internalized self-regulation that is guided by moral standards and values and results in decision making and behavior that is consistent with one's internalized values. When confronted with difficult ethical challenges, leaders with higher levels of moral perspective are expected to think more broadly and deeply about ethical issues (Hannah, Avolio, and Walumbwa 2011). Balanced processing refers to exhibiting the tendency to objectively analyze all relevant data, even views that challenge one's held positions, before coming to decisions. Leaders who exhibit balanced processing solicit views from their followers which can promulgate a better understanding with respect to abstract principles and ethical standards. Relational transparency refers to one's penchant to openly share information and expressions of one's true thoughts and feelings, thereby promoting trust. These four Walumbwa et al. (2008)
14 dimensions are particularly relevant to the predictions made in this study because they are likely to impact managers' escalation of commitment decisions. Self-awareness involves the leader being aware of values, and allowing the values to conform to the needs of other individuals and the community at large (Lord and Brown, 2001). When the leader is a supervisor, as in the context of this study, that community is the organization. Self-awareness also calls for the leader to be emotionally intelligent, and therefore be aware of his/her emotions and understand the causes and effects of such emotions on the decision making process (Gardner et al., 2005). In the context of an escalation of commitment decision it is pivotal that a project manager is able to regulate any emotional attachment he/she may have to the success of the project. An authentic leader that is aware of values and emotions and displays knowledge of how they can impact others will establish such behavior as a norm that is adopted by those under his/her supervision. The internalized moral perspective is the dimension that will set the example for the follower to incorporate moral standards as societal norms. The internalized moral perspective allows the leader to regulate his decision making based on internal morals and standards, as opposed to external pressures. Because morally correct behavior has a positive connotation it is the internalized moral perspective that subordinates will readily accept in the form of a social norm. Internalized moral perspective is related to the escalation of commitment decision in this study because the managers will be subject to ethical tension where morals and values will play an important role in selecting whether to continue the project. Balanced processing indicates that a leader is able to take into account all relevant information without bias when confronted with a decision to make (Gardner et al., 2005). Since the escalation of commitment decision is one in which the new financial information received
15 does not favor the project manager's preferred circumstances, balanced processing will play an important role in preventing the bias towards project continuation.1 With an authentic leader setting an example of objectively analyzing all relevant data this will also be accepted as a norm within the supervisor's group, with which the project manager identifies. Relational transparency allows the follower to trust the leader and more easily allow the leader's attributes to be accepted as part of his social identification (Kernis, 2003). In order for a manager to treat a supervisor's authentic and ethical behavior as a social norm, the manager must be able to observe and perceive that the supervisor is indeed behaving authentically and ethically. By behaving transparently, a supervisor allows the manager to feel like an insider with knowledge that those not reporting to the same supervisor are not privy to. Relational transparency allows the supervisor to present authentic actions to the manager and, when paired with the three previously discussed dimensions, should lead to activation of higher moral reasoning levels. Due to the ethical tension involved in an escalation of commitment decision higher moral reasoning levels should lead to less likelihood of continuing failing projects. 2.3.1 Authentic Leadership and Social Identification As shown in Figure 1, Avolio et al. (2004) propose a framework that predicts the method in which authentic leadership affects follower behaviors. The framework suggests that authentic leadership is directly linked to personal and social identification levels and these identification levels, in turn, influence the followers' degree of hope, trust, and positive emotions. The framework posits that hope has a direct effect on both the follower attitudes and behaviors, while positive emotions directly affect attitudes and influences optimism which can affect both attitudes and behaviors. Trust directly affects follower attitudes but does not have a direct link to 1 Following the context of Harrell & Harrison (1993), Harrison & Harrell (1994), Rutledge & Karim (1999), and Booth & Schulz (2004), project managers will receive financial data that reveals the capital project's projected returns will be below the amount needed to consider it a successful project.
16 follower behaviors. Further, the framework proposed by Avolio et al. proposes a link between authentic leadership and follower attitudes, which include commitment, meaningfulness, engagement, and job satisfaction. In turn, these follower attitudes are directly linked to behaviors such as job performance, extra effort, and withdrawal behaviors. It is from this framework that I identify the link between authentic leadership and social identification. [Insert Fig. 1] Social identification occurs when an individual adopts beliefs and habits of a group, because he/she strongly feels to be an insider of the group (Tajfel, 1974). In this study the group would be identified as those managers reporting to the same supervisor. Shamir et al. (1993) argue a motivational theory to explain the process by which leader behaviors cause profound transformational effects on followers. According to Shamir et al., a person can perceive a given situation as an opportunity to perform in a manner that is in tune with the group. Such an identity is based on the individual linking themselves with a social collective, such as an organization. Shamir et al. also discuss how leader behavior allows a leader's traits to become an example to be followed. The leader becomes a representative character (role model) for the followers, and in turn defines the traits, values and behaviors that are ideal within the group. Establishing a link between authentic leadership and social identification, Hannah et al. (2004) take a closer look at the moral component of authentic leadership and how it affects followers. Hannah et al. propose that an authentic leader's "exemplification of altruism and virtue during leadership episodes will enhance activation of a morally laden working selfconcept within followers" (p. 68). In line with the proposed framework of Avolio et al., Hannah et al. propose that authentic leadership will generate increased levels of trust, moral socialidentification, and moral-emulation, as shown in figure 2. The Hannah et al. framework suggests
17 that it is specifically the exemplification of altruism and virtue that allows authentic leadership to have the said effects. [Insert Fig. 2] High levels of altruism and virtue can be displayed through all four of the dimensions of authentic leadership. Gardner et al. argue that heightened levels of self-awareness (emotional intelligence) will allow an authentic leader to display actions that are not ruled by emotional impulses. Such actions will allow followers to recognize that the leader's actions are indeed in line with the values that the leader expresses. This type of agreement between values and actions allows for trust to develop and trusting the leader of a group makes an increase in social identification within the group more likely (Avolio et al., 2004). Also, a self-aware leader will be able to display to his followers that he/she values them individually and as a group. In turn the followers will find it easier to identify with the leader and the rest of the leader's followers because individuals often gravitate to groups in search of a self-esteem boost (Hogg, 2001). Balanced processing allows followers to witness the decision outcomes of an authentic leader and see that the leader is making decisions without bias, increasing the followers' perception of the leader's integrity. By expressing high levels of integrity in their interactions with followers, authentic leaders increase followers' social identification (Avolio et al., 2004). Internal moral perspective allows a leader to display virtue. Followers are able to witness an authentic leader behave morally and without succumbing to external pressures, which leads the followers to have a virtuous perception of the leader. It is relational transparency that allows the previous three dimensions to be observed by the follower. A transparent leader promotes the free exchange of
18 knowledge and information (Jones & George, 1998). This information includes values and emotions that are referenced in discussing the other dimensions (Gardner et al., 2005). Relational transparency presents the opportunity for followers to establish perceptions about the leader's level of honesty, integrity and virtuousness. 2.3.2 Authentic Leadership in the Presence of Adverse Selection Conditions Prior research suggests that leadership can enhance supervisors' ability to influence subordinates to comply with organizational interests (Jones & Kavanagh, 1996; Dasborough & Ashkanasy, 2005). Dasborough and Ashkanasy (2005) conduct a study using focus groups to examine the effect of authentic leadership on affective reactions and behavioral intentions of followers. Dasborough and Ashkanasy find that authentic leadership had a direct and indirect effect on followers' behavioral intentions and that the indirect effect was moderated by positive affective reactions that lead to an increased desire to comply with the perceived wants of the leader. Prior to the development of the authentic leadership construct, Jones and Kavanagh (1996) performed two experiments in order to examine whether situational and individual variables were related to the ethical behavioral intentions in a work setting. Specifically, Jones and Kavanagh manipulated managerial influences (ethical vs. unethical) along with peer influence and quality of work as situational variables that may affect an employees' ethical behavior intentions. In both experiments, managerial influences had a significant relationship with ethical behavior intentions, suggesting that a supervisor is able to affect the ethical decision making of a subordinate. Hannah et al. (2004) propose that the followers' increased desire to comply with the leader is driven by identification and emulation which result in a higher level of moral activation and a lower likelihood to possess unethical behavior intentions. When adverse selection
19 conditions are present, ethical tension occurs because the manager then has to choose between an alternative that is in the organizations best interest and one that is in his/her own best interest, and is able to do so without the supervisor knowing which alternative is presently in the best interest of the organization. Since motive and opportunity make it possible for the manager to privately make a choice that will benefit himself/herself at the expense of the organization, the decision then becomes one that will be based on whether one alternative is unethical. In turn, if an unethical alternative is identified, does the manager's moral reasoning level prevent him/her from choosing it? 2.3.3 Authentic Leadership and Ethical Decision Making Models of ethical decision making behavior have social identity roots and recognize the important role played by behavioral norms (Westerman et al., 2007). Jones (1991) forms an issue-contingent model of ethical decision making within organizations which focuses on the social desirability of particular ethical behaviors. According to this model, if a manager accepts ethical behavior as part of the desired social identification, the likelihood of ethical behavior is higher. Further evidence stems from Reynolds and Ceranic (2007), who conducted studies testing whether moral behavior resulted from moral identity. Reynolds and Ceranic found that moral identity influenced moral behavior. Trevino (1986) forms an interactionist model that builds on the impact of referent others and normative structures. One type of referent other in this model is the supervisor who assists in developing what the manager perceives as societal norms. Trevino (1986) suggests that perceptions of what referent others did had a greater influence on manager's self-reported unethical behavior than one's own beliefs or the beliefs of top management. These models of ethical decision making give support to the notion that when
20 managers identify socially with a group that is perceived to be ethical then it will increase the tendency for the manager to behave ethically. Brown and Trevino (2006) propose that ethical leadership is positively related to follower ethical decision-making. While ethical leadership differs from authentic leadership in some ways they do overlap and especially where the setting of ethical standards is involved. Some similarities between ethical and authentic leadership include ethical decision-making, integrity, and altruism (Brown & Trevino, 2006). Since both theories share these characteristics it allows me to speak of what has been learned about the effects of the characteristics in ethical leadership research. In reviewing the ethical leadership literature Brown and Trevino (2006) find that ethical leaders provide an opportunity to observe and learn ethically appropriate decisionmaking, which should challenge followers' thinking and encourage their own ethical decision making. Where authentic leadership is different from ethical leadership is found primarily in the self-awareness dimension and relational transparency dimensions (Walumbwa et al., 2008). Ethical leadership theory does not include self-awareness which allows for the interpretation of the ethical decision making to vary. The fact that an authentic leader is self-aware allows followers to be comfortable that the leader is behaving in line with his/her own values and morals. This should allow followers to identify with the leader and group with more ease than if the followers do not know the leader's true values. Another distinction between the authentic and ethical leadership theories is that ethical leadership has a clear transactional component, where rewards and sanctions are used to enforce ethical behavior (Brown & Trevino, 2006). Authentic leadership does not have such a transactional component which allows this study to look at the influence of the presence of authentic leadership without having to tease out whether the real effect is due to the leader's presence or the desire for rewards and fear of sanctions.
21 These differences allow for an authentic leader's intention not to be second guessed and for cleaner analysis when questioning if leadership style alone is enough to reduce unethical decision making. Hannah, Avolio, and Walumbwa (2011) examine the relationship between authentic leadership and ethical behaviors by incorporating moral courage as a mediating variable. Moral courage is defined as "the ability to use inner principles to do what is good for others, regardless of threat to self, as a matter of practice." (Sekerka & Bagozzi, 2007). Hannah et al. find that authentic leadership is linked to followers' ethical behavior and that moral courage is an important mediating mechanism. In the Hannah et al. study both authentic leadership and ethical behavior are measured based on external perceptions. Authentic leadership is measured through perceptions of the followers and ethical behavior is measured using the perceptions of peers. This measure of ethical behavior does not directly examine the ethical decision making tendencies of the follower, which is what the current study accomplishes by directly asking the follower to make a decision involving ethical tension. In addition, Hannah et al. suggest that future research investigate other mechanisms beyond moral courage that may help explain the authentic leadership-ethical behavior linkage. The current study attempts to further the authentic leadership research by examining social/organizational identity as a mediator of the proposed authentic leadership-ethical behavior relationship. The current study proposes that authentic leadership, through greater moral socialidentification, will lead to higher quality ethical decision making and, in turn, a reduction in the likelihood of project managers to continue failing projects, as shown in Figure 3. The authentic leadership style is capable of leading to such moral social-identification because it requires the supervisor to be of high moral standard and to display ethical decision making and behavior
22 transparently to project managers (Kernis, 2003; Hannah, et al., 2004). Assuming the project manager does internalize higher ethical standards as a social norm, the project managers will in turn be more likely to make the ethical decision of discontinuing a failing project. [Insert Fig. 3]
23 CHAPTER 3: HYPOTHESIS DEVELOPMENT AND METHODOLOGY 3.1 Introduction This study examines the effect of authentic leadership on escalation of commitment when adverse selection conditions are in place. In this chapter hypotheses are developed using prior research on escalation of commitment, authentic leadership, and ethical decision making. Hypotheses are tested using an experiment in which MBA students assumed the role of a project manager. In this role, participants were asked to make a decision on whether or not to continue a failing project. They received information about the project's initial cashflow forecasts. They were told that new forecasted information showed a considerable decrease in future cashflows. They were also provided information about an outside job offer and whether the outcome of the current project would impact that offer. Additionally, they were presented information as to whether the new forecasted information was known by others within the organization. Finally, participants were provided with a description of the tendencies of their immediate supervisor. Related to their project continuation decision, participants were asked to provide the likelihood that they would continue the project using a ten-point scale. 3.2 Hypotheses 3.2.1 Authentic Leadership and Social Identity High levels of altruism and virtue can be displayed through all four of the dimensions of authentic leadership. Gardner et al. argue that heightened levels of self-awareness (emotional intelligence) will allow an authentic leader to display actions that are not ruled by emotional impulses. Such actions will allow followers to recognize that the leader's actions are indeed in line with the values that the leader expresses. This type of agreement between values and actions
24 allows for trust to develop and trusting the leader of a group makes an increase in social identification within the group more likely (Avolio et al., 2004). Also, a self-aware leader will be able to display to his followers that he/she values them individually and as a group. In turn the followers will find it easier to identify with the leader and the rest of the leader's followers because individuals often gravitate to groups in search of a self-esteem boost (Hogg, 2001). Balanced processing allows followers to witness the decision outcomes of an authentic leader and see that the leader is making decisions without bias, increasing the followers' perception of the leader's integrity. By expressing high levels of integrity in their interactions with followers, authentic leaders increase followers' social identification (Avolio et al., 2004). Internal moral perspective allows a leader to display virtue. Followers are able to witness an authentic leader behave morally and without succumbing to external pressures, which leads the followers to have a virtuous perception of the leader. It is relational transparency that allows the previous three dimensions to be observed by the follower. A transparent leader promotes the free exchange of knowledge and information (Jones & George, 1998). This information includes values and emotions that are referenced in discussing the other dimensions (Gardner et al., 2005). Relational transparency presents the opportunity for followers to establish perceptions about the leader's level of honesty, integrity and virtuousness. Given the above links between authentic leadership dimensions and increases in social identification, I expect that an authentic leader will affect a manager's level of moral socialidentification and therefore hypothesize the following. H1: Project managers whose immediate supervisor displays authentic leadership will exhibit a greater tendency to identify with the organization than project managers whose immediate supervisor does not display authentic leadership. 3.2.2 Authentic Leadership and Escalation of Commitment
25 Models of ethical decision making behavior have social identity roots and recognize the important role played by behavioral norms (Westerman et al., 2007). Jones (1991) forms an issue-contingent model of ethical decision making within organizations which focuses on the social desirability of particular ethical behaviors. According to this model, if a manager accepts ethical behavior as part of the desired social identification, the likelihood of ethical behavior is higher. Further evidence stems from Reynolds and Ceranic (2007), who conducted studies testing whether moral behavior resulted from moral identity. Reynolds and Ceranic found that moral identity influenced moral behavior. Trevino (1986) forms an interactionist model that builds on the impact of referent others and normative structures. One type of referent other in this model is the supervisor who assists in developing what the manager perceives as societal norms. Trevino (1986) suggests that perceptions of what referent others did had a greater influence on manager's self-reported unethical behavior than one's own beliefs or the beliefs of top management. These models of ethical decision making give support to the notion that when managers identify socially with a group that is perceived to be ethical then it will increase the tendency for the manager to behave ethically. Brown and Trevino (2006) propose that ethical leadership is positively related to follower ethical decision-making. While ethical leadership differs from authentic leadership in some ways they do overlap and especially where the setting of ethical standards is involved. Some similarities between ethical and authentic leadership include ethical decision-making, integrity, and altruism (Brown & Trevino, 2006). Since both theories share these characteristics it allows me to speak of what has been learned about the effects of the characteristics in ethical leadership research. In reviewing the ethical leadership literature Brown and Trevino (2006) find that ethical leaders provide an opportunity to observe and learn ethically appropriate decision-
26 making, which should challenge followers' thinking and encourage their own ethical decision making. Where authentic leadership is different from ethical leadership is found primarily in the self-awareness dimension and relational transparency dimensions (Walumbwa et al., 2008). Ethical leadership theory does not include self-awareness which allows for the interpretation of the ethical decision making to vary. The fact that an authentic leader is self-aware allows followers to be comfortable that the leader is behaving in line with his/her own values and morals. This should allow followers to identify with the leader and group with more ease than if the followers do not know the leader's true values. Another distinction between the authentic and ethical leadership theories is that ethical leadership has a clear transactional component, where rewards and sanctions are used to enforce ethical behavior (Brown & Trevino, 2006). Authentic leadership does not have such a transactional component which allows this study to look at the influence of the presence of authentic leadership without having to tease out whether the real effect is due to the leader's presence or the desire for rewards and fear of sanctions. These differences allow for an authentic leader's intention not to be second guessed and for cleaner analysis when questioning if leadership style alone is enough to reduce unethical decision making. I propose that authentic leadership, through greater moral social-identification, will lead to higher quality ethical decision making and, in turn, a reduction in the likelihood of project managers to continue failing projects, as shown in Figure 3. The authentic leadership style is capable of leading to such moral social-identification because it requires the supervisor to be of high moral standard and to display ethical decision making and behavior transparently to project managers (Kernis, 2003; Hannah, et al., 2004). Assuming the project manager does internalize higher ethical standards as a social norm, the project managers will in turn be more likely to
27 make the ethical decision of discontinuing a failing project. Thus, I predict that when project managers are supervised by someone openly displaying authentic leadership, then the project manager will identify with his/her supervisor and treat the moral behavior as a societal norm that will be emulated. This leads to the following hypothesis: H2: Project managers whose immediate supervisor displays authentic leadership will exhibit a greater tendency to discontinue a failing project than project managers whose immediate supervisor does not display authentic leadership. 3.2.3 The Mitigating Effect of Authentic Leadership in the Presence of Adverse Selection Conditions Prior research suggests that leadership can enhance supervisors' ability to influence subordinates to comply with organizational interests (Jones & Kavanagh, 1996; Dasborough & Ashkanasy, 2005). Dasborough and Ashkanasy (2005) conduct a study using focus groups to examine the effect of authentic leadership on affective reactions and behavioral intentions of followers. Dasborough and Ashkanasy find that authentic leadership had a direct and indirect effect on followers' behavioral intentions and that the indirect effect was moderated by positive affective reactions that lead to an increased desire to comply with the perceived wants of the leader. Prior to the development of the authentic leadership construct, Jones and Kavanagh (1996) performed two experiments in order to examine whether situational and individual variables were related to the ethical behavioral intentions in a work setting. Specifically, Jones and Kavanagh manipulated managerial influences (ethical vs. unethical) along with peer influence and quality of work as situational variables that may affect an employees' ethical behavior intentions. In both experiments, managerial influences had a significant relationship with ethical behavior intentions, suggesting that a supervisor is able to affect the ethical decision making of a subordinate.
28 Hannah et al. (2004) propose that the followers' increased desire to comply with the leader is driven by identification and emulation which result in a higher level of moral activation and a lower likelihood to possess unethical behavior intentions. When adverse selection conditions are present, ethical tension occurs because the manager then has to choose between an alternative that is in the organizations best interest and one that is in his/her own best interest, and is able to do so without the supervisor knowing which alternative is presently in the best interest of the organization. Since motive and opportunity make it possible for the manager to privately make a choice that will benefit himself/herself at the expense of the organization, the decision then becomes one that will be based on whether one alternative is unethical. In turn, if an unethical alternative is identified, does the manager's moral reasoning level prevent him/her from choosing it? In line with this notion, I posit that authentic leadership will lead to less unethical behavior on the part of managers. I expect the forces of adverse selection and authentic leadership to yield a predictable outcome based on ethical tension arising from the two adverse selection conditions (i.e., motive and opportunity). Specifically, when neither opportunity nor motive is in place, the project continuation decision lacks ethical tension. As a result, I expect authentic leadership to have a stronger impact when adverse selection conditions are present than when they are not present. When adverse selection conditions are in place, I expect authentic leadership to reduce escalation of commitment by a significantly greater amount than when adverse selection conditions are not in place. Since I propose that authentic leadership is affecting the escalation decision through heightened moral activation through social identification, then authentic leadership should have a greater impact when ethical tension is in
29 place. Conversely, when adverse selection conditions aren't present, increases in moral identification should have much less of an impact. Recall that Booth and Schulz (2004) do not find a significant interaction between ethical environment and adverse selection. However, I expect to support the proposed interaction described above because research shows that immediate supervisors have a more direct effect on employee behavior than organizational level variables (Mayer, 2009; Davis & Rothstein, 2006; Falkenberg & Herremans, 1995; Posner & Schmidt, 1984; Sims & Keon, 1999).2 Using metaanalysis, Mayer et al. (2009) evaluate a trickle-down model that addresses how ethical leadership flows through multiple management levels. Their results suggest that if there were a direct effect from top management to employee behavior, then it would be mediated by the employee's direct supervisor. In support of this notion, Davis & Rothstein (2006) show a stronger relationship to job satisfaction and organizational commitment with an immediate boss's demonstration of behavioral integrity as opposed to that of top management. Sims and Keon (1999) examined the relationship between formal policies, informal policies, and perceived supervisor expectations and the decision making of participants in five ethical dilemmas. Perceived supervisor expectations were the only independent variable found to affect the decision in all five situations, while the formal corporate policy variable was found to have a relationship with the decision in only three of the situations. The results from Sims and Keon suggest that significant other variables (supervisor, co-worker) may be more robust across decisions with ethical tension than corporate level variables. Hence, I suggest that immediate supervisors (as opposed to the corporate climate studied in Booth and Schulz) have a greater and more robust influence on 2 Booth & Schulz (2004) manipulate overall organizational ethical climate, an organizational level variable and this present study manipulates immediate supervisor's leadership style.
30 employee behavior and that an authentic leader has an impact on follower's moral self-concept and will thereby impact the managers' escalation decision. Based on this reasoning and research, I predict that authentic leadership should have a stronger impact in the presence of ethical tension. Due to this prediction, I expect to find an interaction effect where the influence of an authentic leader is significantly stronger on escalation decisions when adverse selection conditions are present, as illustrated in Figure 4. Given the expectation that (relative to managers facing adverse selection conditions) managers not facing adverse selection conditions will already be more inclined to discontinue the project (the ethically "correct" decision), I expect that the presence of authentic leadership will play a greater role when adverse selection conditions are present, thereby diminishing the previously observed effect of adverse selection (Harrell & Harrison, 1993; Harrison & Harrell, 1994). Therefore, the third hypothesis of this study is: H3: The difference between project managers' likelihood to continue a project when adverse selection conditions are present and when they are not present will be smaller for project managers whose supervisor displays authentic leadership qualities than for project managers whose supervisor does not display authentic leadership qualities. 3.3 Methodology 3.3.1 Overview The hypotheses of this study were tested via an experiment using experienced managers as participants. The experimental materials asked participants to assume the role of a project manager currently managing a capital project initiated by the participant. Participants were provided background information on the project which included the original cashflow projections over the life of the project. Also, participants were provided information on the performance of the project over the first four years and expectations for the three years
31 remaining of the project's lifetime. All participants were provided with the a description of the tendencies of their immediate supervisor, manipulated as either supporting high, neutral, or low authentic leadership. Motive is manipulated by the existence of an external job offer and the impact that a failed project would have on the participants' reputation and marketability. Opportunity is manipulated, in conjunction with motive, by informing participants that the expected future performance about the project is or is not known by others in the firm and industry. Participants with the external job considerations were told that the new cash inflow information is known only by the participant, while participants without the external job considerations were told that the new cash inflow information is known by others in the firm and industry. Finally, participants were presented with two options. Option 1 was to continue the project without any adjustments, while Option 2 was to discontinue the project and sell the machinery which has a selling price higher than the present value of the remaining cash inflows. Case materials required participants to choose Option 1 or 2 using a ten point scale ranging from Definitely Continue to Definitely Discontinue. After completion of the task, a post-experimental questionnaire was used to measure participants' perceptions of the ethicalness of the decision, influence of supervisors, social identification, trust in the supervisor, affect for the supervisor, and ethical norms for the supervisor's followers. The questionnaire also contained manipulation checks for adverse selection conditions and authentic leadership, along with demographic information. 3.3.2 Participants The participants were experienced professionals who were currently enrolled in part-time and full-time MBA programs. MBA students provided mature participants with real world business and management experience that made them appropriate for the decision making task
32 used in this experiment. All participants had either completed or were enrolled in a Managerial Accounting course in which the capital budgeting process had been taught. 3.3.3 Experimental Task Participants were asked to complete an experimental task adapted from that used by Harrell and Harrison (1994), who designed the task to address the major criticisms of prior experimental tasks used in the literature (Conlon & Leatherwood, 1989). The task instructed participants to assume the role of a project manager (investment center manager) who had, 4 years ago, initiated a project with an estimated 7-year life. When initiated, the 7-year cash flow projections for the project were profitable ($270,000 per year on a $1,000,000 investment), and the actual cash flows for the first 4 years had exceeded projections ($320,000 per year). However, the projections for the remaining 3 years indicate a sharp decline (to $50,000 per year) that will make the project unprofitable. Specifically, the net present value of the remaining life of the project was indicated to be $144,327, while its salvage value if discontinued after 4 years was indicated to be $177,500. Given the above information, the project manager was asked to decide whether to continue or discontinue the project, with the normatively correct decision being to indicate a preference for discontinuing the project. Participants were randomly assigned to one of four cases. All versions of the case contained the project information stated above. The first version of the case contained "no" adverse selection and "low authentic leadership" conditions. The second version contained "no" adverse selection and "high authentic leadership" conditions. The third version had adverse selection and "low authentic leadership" conditions. The fourth version included the presence of adverse selection and "high authentic leadership" conditions. All four versions can be found in Appendix A.
33 All participants received a post-experiment questionnaire that included demographic questions, manipulation checks, and variable measures that are analyzed as possible moderators or mediators of the relationship between the presence of authentic leadership and the escalation decision. 3.3.4 Dependent Variable The main dependent variable is a decision to continue or discontinue a project on a Likert type scale that has been used in prior experiments (Harrell & Harrison, 1994; Harrison & Harrell, 1993, Ho & Vera-Munoz, 1998; Rutledge & Karim, 1999; Booth & Schulz, 2004). Specifically, the decision was made on a 10-point scale numbered from 1 to 10. The scale endpoint 1 is labeled as "Definitely" continue, and the endpoint 10 is labeled "Definitely" discontinue. This is a scale where the end points (1 and 10) represent stronger preferences and the middle points (5 and 6) represent weaker preferences. Further, the scale is divided at its mid-point and labeled so that a response between 1 and 5 indicates a continuance decision and a response between 6 and 10 indicates a discontinuance decision. Therefore, the higher (lower) the score reported, the greater the likelihood that a subject will discontinue (continue) the project. In order to test H1, an organizational identification measure was included in the questionnaire. This measure behaves as a dependent variable, since H1 predicts that authentic leadership will lead to increased social identification. Social identification with the organization was captured using an adapted version of the Mael and Ashforth (1992) organizational identification measure which consists of six items. Participants indicated that they strongly agree (7) or strongly disagree (1) on a 7-point scale. Responses to all six items are averaged to calculate the level of social identification. De Cremer (2006) and De Cremer et al. (2006) use a
34 similar adapted scale to identify their participants as either high or low identifiers within a fictitious group scenario.3 3.3.5 Independent Variables The experiment is a 3x2 between-participants design with adverse selection (yes versus no) and authentic leadership (high, neutral, low) as the independent variables. The adverse selection manipulation mirrors that used by Harrell and Harrison (1994), Rutledge and Karim (1999), and Booth and Schulz (2004). In the "no" adverse selection condition, the participants do not experience the conditions associated with adverse selection. They are told that (1) the information about the project's success or failure is available to others in their firm and industry (lack of opportunity), and (2) the discontinuance of the project would cause others in the firm and industry to believe the project was a failure, but would not damage their well-established reputation (lack of motive). 3.3.5.1 Adverse Selection Conditions In the manipulation in which adverse selection conditions are present (i.e., the "yes" adverse selection condition) participants experience the two conditions associated with adverse selection: opportunity and motive. They are told that (1) the information about the project's success or failure is not available to others in their firm or industry (opportunity), and (2) the discontinuance of the project would cause others in the firm and industry to believe the project was a failure. This would damage their reputation as a highly talented manager and probably cause a competing firm to withdraw an offer of a more important position at a higher salary (motive).4 3 De Cremer and associates directly manipulate "collective identification" and this study only proposes to affect identification through the authentic leadership manipulation. 4 In this study, reputation is viewed on a short-term basis, as indicated by the possibility of a bad reputation immediately affecting a current employment opportunity.
35 3.3.5.2 Authentic Leadership The authentic leadership manipulation was developed for this study. In the condition where the authentic leadership is not present ("low authentic leadership" condition), participants were given a brief description of their immediate supervisor, which portrayed the supervisor as being concerned with targets for market share and profits and bases his reward system on such targets and projections. The low authentic leadership condition also describes the supervisor by misaligning the supervisor's tendencies with dimensions of an authentic leader (Walumbwa et al., 2008): Self-Awareness: that the supervisor rarely seeks the subject's feedback to improve their interactions and is inaccurate in describing his own capabilities. Relational Transparency: that the supervisor is not known for speaking candidly and finds it difficult to admit to mistakes when they are made. Internalized Moral Perspective: that the supervisor's actions are inconsistent with his/her beliefs and it is difficult to tell if the supervisor makes difficult decisions based on high standards of ethical conduct. Balanced Processing: that the supervisor never solicits views that challenge his/her positions and overlooks different points of view before coming to conclusions. In the condition where authentic leadership is present ("high authentic leadership" condition), a description of the immediate supervisor will align his interactions with the subject with the four dimensions that make up the authentic leadership construct outlined by Walumbwa et al. (2008): Self-Awareness: that the supervisor seeks the subject's feedback to improve their interactions and is accurate in describing his own capabilities. Relational Transparency: that the supervisor is known for speaking candidly and admits to mistakes when they are made. Internalized Moral Perspective: that the supervisor's actions are consistent with his/her beliefs and the supervisor makes difficult decisions based on high standards of ethical conduct.
36 Balanced Processing: that the supervisor solicits views that challenge his/her positions and listens carefully to different points of view before coming to conclusions. The neutral condition only describes the manager as being typical and concerned with market share and profits. This condition does not tie in the authentic leadership dimensions. 3.3.6 Additional Variables and Manipulation Checks Moral reasoning was captured as a measured variable in order to confirm that higher moral reasoning results in less escalation of commitment (Rutledge & Karim, 1999). Moral reasoning was measured by an abbreviated version of the HEXACO personality inventory measure which has been empirically tested to be correlated with ethical decision making tendencies (Pinto et al., 2008). Hope, trust, and positive emotions are captured in the questionnaire because based on the framework from Avolio et al. (2004) these variables may mediate any relationship between authentic leadership and follower performance. The trust measure is from McAllister (1995). Hope is measured by items taken from the Miller and Powers (1998) scale. Positive emotion is evaluated using four items adapted from Watson and Tellegen (1985). Additionally in order to assure that ethical tension is being created by the presence of adverse selection conditions, the research instrument included an item that asked the participants if they felt that continuing an unprofitable project was ethically wrong. Also, participants were asked if immediate supervisors are able to influence judgment. Another item included in the research instrument addresses whether or not the participants perceive moral behavior as a social norm within the supervisor's group. Two manipulation checks were conducted in relation to participants' perceptions of adverse selection conditions and the authentic leadership questionnaire was used as a
37 manipulation check of the participants' perception of the authenticity of the supervisor. The adverse selection condition questions asked whether the information on future cash flows was common knowledge (opportunity) and what impact discontinuing the project had on reputation and marketability of the subject (motive). The Authentic Leadership Questionnaire served as the manipulation check for the authentic leadership manipulation. The participants were asked to respond to the items using a 7-point scale with endpoints labeled "Disagree strongly" and "Agree strongly". Examples of the items are as follows: Jamie encourages you to speak your mind. (Relational Transparency) Jamie makes difficult decisions based on high standards of ethical conduct. (Internalized Moral Perspective) Jamie solicits views that challenge the positions he holds. (Balanced-Processing) Jamie seeks feedback to improve interactions with others. (Self-Awareness) 3.3.7 Conclusion This chapter developed the hypotheses of this study and discussed the experimental method that was used to test those hypotheses. The next chapter will present and discuss the results of those data analyses.
38 CHAPTER 4: RESULTS 4.1 Introduction Chapter 3 developed the hypotheses and discussed the design of the study. The research methodology was designed to evaluate the main and interactive effects of authentic leadership on escalation of commitment. This chapter provides the results of the study and a discussion of the findings and is organized as follows: a description of the participants is provided, manipulation checks are performed to ensure participants understood various aspects of the experimental materials, the hypotheses are tested, and the results are summarized. 4.1 Description of Participants A total of one hundred eighteen experimental packets were distributed to participants who were enrolled in M.B.A. programs. The programs were located in Philadelphia, PA and High Point, NC. I (or a faculty liaison) distributed the packets, and responses were returned directly to me (or the liaison). Participants' total years of professional work experience ranged from 1 to 30. Mean total years of professional work experience equaled 9.2 years. Chapter 3 identified the appropriate participants as individuals who have practical business and management experience and knowledge of the Capital Budgeting process. All participants were currently enrolled in or one semester removed from an MBA level Managerial Accounting course in which they had reviewed Capital Budgeting. Table 1 presents a summary of the demographic backgrounds of the participants and the results of statistical analyses of the demographic information. To examine whether there were pre-existing differences between the groups in terms of their demographic characteristics, a two-
39 way ANOVA was performed for each of the following variables: (1) professional work experience, (2) age, and (3) moral reasoning. None of the demographic variables are significantly different at conventional levels (p's > .05) between groups and when these variables are added to the main model as covariates, they do not affect the conclusions drawn. [Insert Table 1 here] 4.3 Manipulation Checks 4.3.1 Manipulation Check for Adverse Selection Conditions As noted in Chapter 3, participants were randomly assigned to the Adverse Selection Condition manipulations. After completion of the decision case, participants were asked to indicate whether the information on projected cash flows and expected future performance for the project was known only by him/her or widely known to others in the firm. Participants were also asked if information on a failed project would have little to no effect or have a damaging effect on your reputation, job security and marketability. An examination of the participant responses reveals that, out of 118 participants, five incorrectly responded to the cash flows questions and seven responded incorrectly to the job security question. Removing these participants from the analysis does not significantly affect the results presented or change any of the inferences drawn. Therefore, I present results using all 118 participants. 4.3.2 Manipulation Check for Authentic Leadership To assess the authentic leadership manipulation participants were asked to respond to a version of the Authentic Leadership Questionnaire adapted to correspond to the supervisor in the decision case. The questionnaire was made up of 16 items that participants responded to using a 5-point scale (0= Not at all, 4= Frequently, if not always). An average of the 16 responses was
40 taken to form a score used to assess the effectiveness of manipulation check. Mean scores for participants in the high, neutral, and low authentic leadership conditions are significantly different (3.1, 2.17, and 1.1 respectively; p < .001), suggesting that the manipulation was successful. 4.4 Testing of Statistical Assumptions In this section I discuss the statistical assumptions that underlie my sample data and then I present alternative analyses performed, where appropriate. In order to utilize independentsamples t-tests and ANOVA to test the hypotheses of this study, three basic statistical assumptions must be met. The three assumptions that underlie these statistical analyses are: (1) independence of the dependent variable between treatment groups, (2) normal distribution of treatment populations, and (3) homogeneity of variances between treatment populations (Keppel 1991; Gardner 2001). The first assumption is that the observations must be independent. All participants were randomly assigned to the six possible experimental groups. Since their assignment to a group was not dependent upon any other participant in their group or any other group, this assumption is met (Keppel 1991; Gardner 2001). The second assumption is that the treatment populations are normally distributed. This assumption was tested by the Kolmogorov-Smirnov test of normality. Normality tests were performed for the hypothesized dependent variable (see table 1 for a depiction of the four groups). Nontabulated results indicate violations of the normality assumptions (p's < .05) for the hypothesized dependent variable. However, it has been shown that ANOVA and independentsamples t-tests are robust with respect to violations of this assumption (Glass, Peckham, and Danders 1972). Violations of the normality assumption do not appreciably influence Type I
41 errors, unless the sample size is quite small (Cardinal and Aiken 2006). Small sample sizes may not have sufficient power to detect differences in mean responses (Mendenhall, Schaeffer and Wackerly 2002). The statistical power associated with my sample is .859 and represents the ability of my tests to detect an effect, if the effect actually exists. The third assumption concerns the homogeneity of variances between treatment populations. This assumption was analyzed with Levene's test of homogeneity of variances. The Levene test specifically assesses whether the error variance of the dependent variable across all groups is equal. Nontabulated results indicate a violation of this assumption (p < .05). According to Wilcox (1987) and Keppel (1991), the absolute value of the independent-samples t statistic becomes biased in the positive direction (i.e., increasing the likelihood of a Type I error) when the largest within group variance divided by the smallest within group variance is 9 or greater. In order to evaluate the effects of heterogeneity of variances on my dependent variable, such a calculation was performed with a result equaling 1.29. Thus, it appears the independentsamples t-test will be relatively insensitive to the heterogeneity of variances present between groups. 4.5 Hypothesis Testing 4.5.1 Introduction The remainder of this chapter contains the results of hypothesis testing. These tests examine the effects of adverse selection conditions and authentic leadership on project managers' project continuation decisions. The hypotheses presented in chapter 3 depict relationships between one or two dichotomous independent variables and a single dependent variable. Individual hypothesis testing was generally conducted with an independent-samples t-
42 test or, where appropriate with a 2X2 ANOVA model.5 The responses from participants that received the neutral authentic leadership manipulation were excluded from the hypothesis testing, due to the hypotheses not addressing expectations of those responses. 4.5.2 Authentic Leadership and Organizational Identification (Hypothesis One) Hypothesis One examines the manipulation of authentic leadership. This hypothesis predicts project managers whose supervisors display authentic leadership characteristics will be more likely to identify with the organization. Hypothesis One states: H1: Project managers whose immediate supervisor displays authentic leadership will exhibit a greater tendency to identify with the organization than project managers whose immediate supervisor does not display authentic leadership. Each participant completed an eight item measure used to determine how strongly the participant identified with organization after completing the decision case (7-point scale; 1 = Disagree strongly, 7 = Agree strongly). An average of the 8 responses was used as the dependent variable for this hypothesis. Since Hypothesis One is examining the impact of authentic leadership, an ANOVA is used to test the hypothesized effect on project managers' organizational identification. Table 2 presents the results of Hypothesis One testing. Significance levels presented in Table 2 are onetailed due to the directional nature of the hypothesis. The mean organizational identity score for high (low) authentic leadership is 5.27 (4.69). These means are in the hypothesized direction. The ANOVA results indicate a significant authentic leadership effect (F =5.492, p = .011) and support Hypothesis One.6 The results suggest that when the project manager's supervisor 5 The neutral condition of the authentic leadership manipulation is eliminated in the main hypotheses tests in order to reduce the complexity of interpreting the results. Results including the neutral condition are reported using footnotes. 6 Results for H1 testing including the neutral authentic leadership condition also support H1 (F=3.218, p=.022).
43 possesses characteristics of an authentic leader then the project manager finds it easier to align him/herself with the organization. When the authentic leadership characteristics are not present the project manager may be less likely to identify with the organization. [Insert Table 2 here] 4.5.3 Authentic Leadership and Escalation of Commitment (Hypothesis Two) Hypothesis Two examines the manipulation of Authentic Leadership and its affect on the project continuation decision. This hypothesis predicts project managers who are supervised by an authentic leader will take action that maximizes the organization's best interest (i.e., discontinue the project) while managers who are not supervised by an authentic leader will be more likely to take action that maximizes their own self interest (i.e., continue the project). Hypothesis Two states: H2: Project managers whose immediate supervisor displays authentic leadership will exhibit a greater tendency to discontinue a failing project than project managers whose immediate supervisor does not display authentic leadership. Each participant provided a response to the question of whether they would continue or discontinue the project on a 10 point scale (1=Definitely Continue, 10=Definitely Discontinue). The scale was divided in half as to illustrate to participants that 1-5 meant they would continue the project and options 6-10 indicated they would discontinue the project. This scaled response serves as the dependent variable for this hypothesis. Since Hypothesis Two is examining the impact of authentic leadership on escalation of commitment, an ANOVA is used to test the hypothesized effect on project managers' project continuation decisions. Table 3 presents the results of Hypothesis Two testing. Significance levels presented in Table 3 are one tailed due to the directional nature of the hypothesis. The
44 mean response for project managers' with high (low) authentic leaders is 7.08 (6.25). These means are in the hypothesized direction. Independent-samples t-test results indicate a moderately significant authentic leadership effect (F= 2.183, p=.072).7 The results suggest that when there is an authentic leader in place his/her influence may not be substantial enough to influence project managers' decisions in all conditions (i.e. both with and without the presence of adverse selection conditions). Those project managers without the presence of adverse selection conditions may be inclined to discontinue the project regardless of whether the supervisor is an authentic leader and therefore the authentic leadership effect will be minimal for those project managers. [Insert Table 3 here] 4.5.4 The Mitigating Effect of Authentic Leadership (Hypothesis Three) Hypothesis Three predicts that an authentic leader may reduce the influence of adverse selection conditions. Specifically, this hypothesis predicts the difference in project managers' likelihood to continue the project given the presence or absence of adverse selection conditions will be smaller when the project managers' supervisor is an authentic leader than when the supervisor is not. Therefore, my third hypothesis reflects the interaction between the adverse selection conditions and supervisor's level of authentic leadership: H3: The difference between project managers' likelihood to continue a project when adverse selection conditions are present and when they are not present will be smaller for project managers whose supervisor displays authentic leadership qualities than for project managers whose supervisor does not display authentic leadership qualities. 7 Testing of H2 with the inclusion of the neutral condition of authentic leadership suggests an even stronger effect of authentic leadership although still moderately significant (F=2.213, p=.057).
45 This hypothesis is based on the notion that the presence of an authentic leader influences what a project manager sees as social norms and the value of making morally correct decisions. The interaction is based on the conclusion that when adverse selection conditions are present the project managers' are more likely to make a decision to continue the project. Therefore, I first examine whether the presence of adverse selection conditions did increase the likelihood of project continuation regardless of leadership. An independent samples t-test is utilized to examine participant responses to the project continuation question. The sample is split between adverse selection condition groups. The group with adverse selection conditions present (absent) has a mean response of 7.28 (6.05). These means were significantly different (t= 2.232, p=.014), confirming prior findings that in the presence of adverse selection conditions project managers are more likely to continue the failing project. H3 suggests that the presence of an authentic leader will reduce project managers' tendency toward self-interested behavior. Specifically, I expect authentic leadership and adverse selection conditions to interactively affect project managers' likelihood to continue the failing project. The dependent variable for this hypothesis is the same scaled response to the project continuation decision. Table 4 presents the results of Hypothesis Three testing. The significance level presented in Table 4 is one-tailed due to the directional nature of the hypothesis. Results indicate a significant interaction effect for adverse selection conditions and authentic leadership (F= 10.657, p = .001).8 For project managers in the high authentic leadership condition, the difference in mean responses when there are/are not adverse selection conditions is 0.45. This is significantly less than the difference in the mean response of 2.9 given by managers in the low authentic leadership condition. Thus, a supervisor who displays the characteristics of an 8 The ANOVA results for testing H3 also show a significant interaction effect between authentic leadership and adverse selection conditions when the neutral condition of authentic leadership is included (F=5.282, p= .003)
46 authentic leader appears to reduce the unethical decision-making behavior. Overall, the sample data support Hypothesis Three and suggest that authentic leadership mitigates the influence of adverse selection conditions on project managers' likelihood to continue failing projects. [Insert Table 4 here] 4.5.5 Summary of Hypothesis Testing The results of this study indicate when adverse selection conditions are present; project managers are more likely to continue a failing project. More importantly, results display that the presence of an authentic leader mitigates the effect of adverse selection conditions (H3). Specifically, the difference between project managers' likelihood to continue a failing project when there are adverse selection conditions and when there are not is less for project managers who report to a supervisor who displays characteristics of an authentic leader. As a result, project managers' propensity to make project continuation decisions that are consistent with having motive and opportunity to maximize self-interest is mitigated when their immediate supervisor exhibits characteristics in line with an authentic leader. In addition results reflect a positive effect of authentic leadership on organizational identity (H1). Finally, results reveal a moderate direct effect of authentic leadership on escalation of commitment (H2). Specifically, the presence of an authentic leader decreases the likelihood of a project manager continuing a failing project. 4.6 Supplementary Analyses 4.6.1 Organizational Identity as a Mediator Hypothesis one predicted project manager's whose supervisors display authentic leadership characteristics will report higher levels of organizational identification. Analysis of hypothesis one supports this prediction which agrees with the model established by Avolio et al.
47 (2004). Avolio et al. also predict that social identification will mediate the relationship between Authentic Leadership and follower behavior. In the current study the follower behavior investigated is the likelihood that the project manager will discontinue the failing project. In order to further examine the model from Avolio et al. the four step Baron and Kenny mediation test was performed to investigate the possibility of social/organizational identity mediating the effect of authentic leadership on the project continuation decision (Baron and Kenny, 1986). Step one is a simple regression of the project continuation decision on authentic leadership. This regression reveals a moderately significant effect authentic leadership on the project continuation decision similar to the results for testing hypothesis two (t=1.478, p= .072). Step two is a simple regression of organizational identification on authentic leadership. This reveals a significant effect of authentic leadership on organizational identification similar to the testing for hypothesis one (t=5.492, p= .011). Step three is a regression of the project continuation decision on organizational identity. The third step suggests that there is not a significant relationship between organizational identification and the project continuation decision (t=.135, p=.447). Since the third step does not provide proof of a relationship between the proposed mediator (organizational identity) and the dependent variable (project continuation decision), then there is no need to perform the fourth step and the mediation test has failed. The results on the mediation test suggest that Authentic Leadership affects the project continuation decision through a different or multiple constructs. 4.6.2 Interaction between Authentic Leadership and Perceived Ethicalness of the Project Continuation Decision Additional analysis produced an interesting interaction effect between authentic leadership and the subjects' perceived ethicalness of the project continuation decision. An
48 ANOVA was run examining the effects of both authentic leadership and perceived ethicalness of the project continuation decision on the project continuation decision. The independent variable for perceived ethicalness of the project continuation decision ("ethical tension") was dichotomized9 using a median split of the responses to the item: "I feel continuing an unprofitable project is morally/ethically wrong." Subjects responded to this item on a 10-point scale where "1" is labeled "Disagree strongly" and "10" is labeled "Agree strongly". The mean (median) response to this item was 5.901 (6). Therefore, all responses below "6" were assigned a value of zero and the group is labeled as "No ethical tension", while responses equal to or greater than "6" were assigned a value of one and that group is labeled as "Ethical tension". This dichotomization results in 44 subjects in the Ethical tension group and 36 in the No ethical tension group. The results of this ANOVA are reported in Table 5 and imply a significant interaction effect on the project continuation decision. The results suggest that when project manager's perceive the project continuation decision as an ethical decision then the likelihood of the project manager to continue the project does not differ significantly whether an authentic leader is present or not. However, when project managers perceive that the project continuation decision is not of an ethical nature then project managers with a supervisor who displays authentic leadership characteristics is significantly more likely to discontinue the project. Further examination of cell means reported in Table 5 suggest that only when an authentic leader is not in place and the decision is perceived to not be of an ethical nature are managers likely to continue the project (cell mean = 4.94). Given that the project managers who do not perceive 9 Dichotomization of continuous variables has been criticized for having negative consequences. The primary argument against this practice has been that it underestimates the strength of relationships and reduces statistical power (Maxwell & Delaney, 1993). Therefore the dichotomization of a single predictor variable should bias against the study providing significant results.
49 ethical tension in the decision are affected by the presence of authentic leadership, then it is implied that an authentic leader may affect escalation in a different manner or in conjunction with moral emulation. These results and implications may also explain the inability to support the prediction of social identification as a mediator. [Insert Table 5 here]
50 CHAPTER 5: CONCLUSIONS, LIMITATIONS, AND IMPLICATIONS 5.1 Introduction This study examined the effects of authentic leadership on project managers' project continuation decisions. Specifically, the likelihood of project managers to continue failing projects when adverse selection conditions are present. MBA students completed an experimental case which asked them to assume the role of a project manager in a hypothetical company and required them to make a project continuation decision. Authentic leadership was manipulated as low, neutral, and high using a vignette constructed specifically for this study. This allowed for the authentic leadership construct to be examined in a laboratory experiment design as suggested by Gardner et al. (2011) whose review of the literature found 94% of studies examining authentic leadership through 2011 had been field studies. In addition, adverse selection conditions were manipulated as present or not present. Motive was manipulated through the presence or lack thereof of an outside job opportunity, while opportunity was manipulated through information asymmetry of revised forecast data. The following sections offer conclusions, limitations, and implications for the study. 5.2 Conclusions There is evidence that project managers are more likely to continue a failing project when adverse selection conditions are present (Harrell & Harrison, 1993; Harrison & Harrell, 1994). A considerable amount of studies examine possible methods to mitigate the effect of adverse selection conditions on escalation of commitment (Dzuranin, 2008; Booth & Schulz, 2004; Kadous & Sedor, 2004; Cheng et al., 2003; Tan & Yates, 2002; Rutledge & Karim, 1999; Ghosh, 1997). However, these studies cannot assess whether escalation of commitment is mitigated by
51 leadership type or any other personal interaction variables. Also, a majority of the previous work ignores the ethical aspect involved in a project continuation decision. There are two studies that have examined the ethical aspect of a project continuation decision to some extent (Booth & Schulz, 2004; Rutledge & Karim, 1999). These studies do not examine the ability of a supervisor to mitigate escalation of commitment through leadership style. The current study is the first escalation of commitment study to manipulate a supervisor's leadership style. This allows the examination of escalation tendencies when a supervisor is behaving authentically and when a supervisor is not. In addition, this study incorporates a descriptive vignette to manipulate authentic leadership as opposed to measuring an existing employee perception. The manipulation allows leadership style to be removed from any existing confounding variables that also affect the relationship between employee and supervisor. The results of the study confirm that project managers are more likely to continue a failing project when adverse selection conditions exist. In addition the study indicates that leadership style of an immediate supervisor influences project continuation decisions of project managers facing adverse selection conditions. Specifically, results suggest that when adverse selection conditions are present project managers supervised by an authentic leader are less likely to continue a failing project. The analysis shows that without the presence of adverse selection conditions the project managers are about equally likely to discontinue the project with or without an authentic leader supervising them. In turn, when adverse selection conditions are presented without the presence of an authentic leader then project managers' likelihood of discontinuing the project is reduced significantly. This effect of adverse selection conditions appears to be mitigated by authentic leadership in view of the fact that when an authentic leader
52 is present project managers facing adverse selection conditions likelihood of discontinuing the project is equal to the level of project managers not facing adverse selection conditions. Additional analysis implies that authentic leadership also affects the project managers' level of organizational identification. When the immediate supervisor of the project manager is an authentic leader then the level of organizational identification indicated by the project manager increases, implying that an authentic leader can cause a project manager to feel more closely identified with the organization. Though results of the mediation analysis do not confirm that the relationship between authentic leadership and escalation of commitment is mediated by organizational identification, this increase in organizational identification may lead project managers to make a decision that is in line with the best interest of the company. Authentic leadership was also found to mitigate the effect of whether project manager's viewed the project continuation decision as an ethical decision. Specifically, results suggest that when the project continuation decision is not perceived to cause ethical tension, project managers supervised by an authentic leader are less likely to continue a failing project. The analysis shows that when the project continuation decision is perceived to cause ethical tension, the project managers are about equally likely to discontinue the project with or without an authentic leader supervising them. In turn, when ethical tension is not perceived without the presence of an authentic leader then project managers' likelihood of discontinuing the project is reduced significantly. This effect of adverse selection conditions appears to be mitigated by authentic leadership in view of the fact that when an authentic leader is present, the likelihood of discontinuing the project for managers not perceiving ethical tension is equal to that of project managers perceiving ethical tension. These results imply that even when the project continuation decision is not perceived to be an ethical decision, authentic leadership reduces the likelihood of
53 continuing a failing project. Therefore, there are additional links between authentic leadership or the way in which it is manipulated in this study and escalation of commitment that don't involve moral emulation. 5.3 Limitations The conclusions drawn from this study are subject to several limitations. First, the study is designed to manipulate motive and opportunity concurrently. Therefore, this study cannot assess whether any of the behavior observed is from motive only, opportunity only, or both. However, previous research on escalation of commitment suggests that both motive and opportunity must be present to increase escalation tendencies (Harrison & Harrell, 1994). Also, this study looks at only one case of project re-evaluation. In practice there are many dimensions of capital projects (e.g., initial investment expenditure, life of the project, difference in revised forecast). Project managers may react differently when making project continuation decisions if any of these dimensions differ considerably from the case used in the study. In addition, this study employs an experimental research design to test is hypotheses. While the main advantage of this design is enhanced internal validity, the use of an experimental design may reduce the study's external validity. Although case materials were developed from previous research instruments, when project managers make actual project continuation decisions they may have a richer information set than was provided in the case materials. Finally, this study assumes that the involvement in a Master's level managerial accounting course where capital budgeting is taught and practiced serves as a reasonable proxy for knowledge related to how capital budgeting works. The case materials did not provide participants with any examples of how to make capital budgeting decisions nor did the questionnaire measure capital budgeting knowledge. Therefore it is possible that participants
54 only possessed a cursory knowledge of capital budgeting and did not understand the full implications of their decisions. 5.4 Implications The findings of this study have implications for practice and future research. Organizations may want to consider the implications of authentic leadership on employees' ethical decision making. For example, organizations may want to consider implementing supervisor training that incorporates an authentic leadership style. In addition, organizations may want to stress aspects of authentic leadership to managers, especially relational transparency and internalized moral perspective. The findings reported in this study specifically illustrate the ability of leadership style to mitigate escalation of commitment tendencies when adverse selection conditions are present. This makes leadership training even more relevant in organizations where project managers are often privy to information about the project either well in advance of others or without others ever viewing it. There are some interesting implications for future research as well. While results show that authentic leadership mitigates the effect of adverse selections conditions on escalation of commitment, there may be other leadership styles that have an equal or greater positive effect on the project continuation decision. Future research should identify other leadership styles that either mitigate or exacerbate the effect of adverse selection conditions. Interaction with a supervisor is only one type of personal interaction variable. It would be interesting to examine other personal interaction variables such as co-worker relationships or vendor/customer communications to see if they have the ability to impact escalation of commitment. In addition, future research may also examine whether the effect of authentic leadership is only significant if it is indeed the immediate supervisor displaying the aspects of authentic leadership. Specifically
55 it would be interesting to examine whether an authentic leadership at the CEO or CFO level will have the same impact. Finally, given that this study also implies that authentic leadership can be used to reduce escalation tendencies when project managers do not perceive ethical tension in a project continuation decision, future research may want to examine the impact of the authentic leadership dimensions individually to better understand outcomes and mediators associated with the construct as a whole and the individual dimensions. Additionally, the results of this study suggest that authentic leadership increases employees' level of organizational identification. Research has shown that increased organizational identification results in higher employee motivation and output. Therefore, future leadership research should examine the effect of authentic leadership on job related tasks, as well as decisions. In order to completely verify the mitigating effect of authentic leadership on escalation of commitment it may be useful to use an archival based research design to determine if the history of project continuation agrees with the implications of the results of this study. Specifically, project managers can give their perception of an actual supervisor's leadership style and actual results of project continuation decisions. This type of study may be difficult due to the difficulty in obtaining individual organizations and project managers capital budgeting and forecast data.
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60 Mayer, D. M., Kuenzi, M., Greenbaum, R., Bardes, M., & Salvador, R. (2009). How low does ethical leadership flow? Test of a trickle-down model. Organizational Behavior and Human Decision Processes, 108, 1-13. McAllister, D.J. (1995). Affect and cognition based trust as foundations for interpersonal cooperation in organizations. Academy of Management Journal, 38, 24-59. Mendenhall, W., Sheaffer, R., & Wackerly, D. (2002). Mathematical Statistics with Applications, 6th ed., Duxbury Miller, J. F., & Powers, M. J. (1998). Development of an instrument to measure hope. Nursing Research, 37, 6-10. Noreen, E. (1988). The economics of ethics: A new perspective on agency theory. Accounting, Organizations, and Society, 13, 359-369. O'Fallon, M. J., & Butterfield, K. D. (2005). A review of the empirical ethical decision-making literature. Journal of Business Ethics, 59, 375-413. Pinto, J., Leana, C. R., & Pil, F. K. (2008). Corrupt organizations or organizations of corrupt individuals? Two levels of organization-level corruption. The Academy of Management Review, 33, 685-709. Pittinsky, T. L., & Tyson, C. J. (2005). Leader authenticity markers: Findings from a study of perceptions of African American political leaders. In W. L. Gardner, B. J. Avolio, & F. O. Walumbwa (Eds.) Authentic leadership theory and practice: origins, effects and development. Oxford, UK: Elsevier Science. Posner, B., & Schmidt, W. (1984). Values and the American manager: An update. California Management Review, XXVI, 202-216. Reynolds, S. J., & Ceranic, T. L. (2007). The effects of moral judgment and moral identity on moral behavior: An empirical examination of the moral individual. Journal of Applied Psychology, 92, 1610-1624. Ruchala, L. V. (1999). The influence of budget goal attainment on risk attitudes. Behavioral Research in Accounting, 11, 161-191. Rutledge, R. W., & Karim, K. E. (1999). The influence of self-interest and ethical considerations on managers' evaluation judgments. Accounting, Organizations and Society, 24, 173­ 184. Schulz, A. K. D., & Cheng, C. M. (2002) Persistence in capital budgeting reinvestment decisions- personal responsibility and antecedent and information asymmetry moderator: A note. Accounting & Finance, 42, 73-86.
61 Shamir, B., House, R., & Arthur, M. B. (1993). The motivational effects of charismatic leadership: A self-concept based theory. Organizational Science, 4, 577-594. Sims, R. I., & Keon, T. L. (1999). Determinants of ethical decision making: The relationship of the perceived organizational environment. Journal of Business Ethics, 19, 393-401. Tan, H., & Yates, J. F. (2002). Financial budgets and escalation effects. Organizational Behavior and Human Decision Processes, 87, 300. Tajfel, H. (1974). Social identity and intergroup behaviour. Social Science Information, 13, 6593. Trevino, L. K. (1986). Ethical decision-making in organizations: A person-situation interactionist model. Academy of Management Review, 11, 601-617. Walumbwa, F. O., Avolio, B. J., Gardner, W. L., Wernsing, T. S., & Peterson, S. J. (2008). Authentic leadership: Development and validation of a theory-based measure. Journal of Management, 34, 89-126. Watson, D., & Tellegen, A. (1985). Toward a consensual structure of mood. Psychological Bulletin, 98, 219­235 Weaver, G. R., Trevino, L. K., & Agle, B. (2005). Somebody I look up to: Ethical role models in organizations. Organizational Dynamics, 34, 313-330. Westerman, J. W., Beekun, R. I., Stedham, Y., & Yamamura, J. (2007). Peers versus national culture: An analysis of antecedents of ethical decision-making. Journal of Business Ethics, 75, 239-252. Wilcox, R. R. (1987). New designs in analysis of variance. Annual Review of Psychology, 38, 29-60.
62 FIGURE 1 Avolio et al. 2004 ­ Proposed framework of authentic leadership affecting follower behavior.
63 Figure 2 Hannah et al. ­ Proposed framework of authentic leadership leading to moral-emulation. Trust
Authentic Leadership
Exemplification of altruism & virtue
Moral Socialidentification Moral Emulation
64
Figure 3 Proposed framework for Authentic Leadership to reduce escalation of commitment
Authentic Leadership
(+) Moral Social- (+)
Identification
(1)
(2)
Moral Reasoning (-)
Escalation of Commitment
Level
(3)
(Ethical Decision Making)
Expectations: (1) Authentic leadership will increase moral social identification (H1). (2) Due to increased moral social identification moral reasoning levels will increase. (3) Increased moral reasoning levels will reduce likelihood to continue failing project (H2).
65 Figure 4 Proposed diagram of interaction effect. (H3) Y-axis represents participants' response as to whether to continue the project. X-axis represents whether authentic leadership is high or low.
66 APPENDIX: EXPERIMENTAL INSTRUMENT EXHIBIT 1. Case Material Provided to Participants in the "Adverse Selection Condition/Low Authentic Leadership" Group EXHIBIT 2. Case Material Provided to Participants in the "Adverse Selection Condition/High Authentic Leadership" Group EXHIBIT 3. Case Material Provided to Participants in the "No Adverse Selection Condition/Low Authentic Leadership" Group EXHIBIT 4. Case Material Provided to Participants in the "No Adverse Selection Condition/High Authentic Leadership" Group EXHIBIT 5. Demographic and Case-Related Questionnaire Provided to All Participants
67
Exhibit 1
(Low Authentic Leadership, Adverse selection conditions)
Your Position You are a junior project manager with the Williams 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 benefits, for the Williams Company is aware that an active market for highly talented project managers exists in your industry. When a project that is managed by a junior project manager fails, this damages the individual's project management 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 a highly talented project manager stimulated another firm, the Jones Corporation, to initiate confidential discussions about recruiting you to a more important position with a substantially higher salary.
The Project
Four years ago, you initiated Project B, which you still manage, with the following projected cash flows:
Cash Flow
Year
0
1
2
3
4
5
6
7
Investment
(1,000,000)
Net Cash Flows
270,000 270,000 270,000 270,000 270,000 270,000 270,000
Salvage Value
50,000
At that time, with a discount rate of 16 % Project B was predicted to have a Net Present Value of $108,100 over its full seven-year life. Performance has been above expectations during the first four years, with annual net cash inflows of $320,000. As project manager you possess information which indicates that Project B's net cash inflows will sharply decline and be only $50,000 each year for the remaining three years of its lifetime. This information is known only to you as project manager and is NOT available to others in your company and industry.
Your Decision Task At the end of the fourth year of operations of Project B, you are reviewing its status given your information about its decline in cash flows for the remaining three years (Years 5, 6 & 7). You have two options available to you. You will have to report the option you choose to Jamie, who is your immediate supervisor. Jamie, like most typical mangers, is mostly concerned with meeting targets for increasing market share and profits. He also focuses on meeting earnings and growth projections while reiterating the need to meet such goals in order to be rewarded by the company. Jamie rarely seeks feedback from you, or looks to improve the interactions between the two of you. When speaking of his own capabilities, Jamie is usually inaccurate in describing his strengths and weaknesses. He also finds it difficult to admit when he makes a mistake. Jamie does not emphasize the need for everyone on his team to speak their mind and his true emotions are difficult to read. Jamie's actions on the job are inconsistent with moral beliefs he has established as an individual and as a result he sometimes makes decisions that contradict his core values. When making difficult decisions it is hard to tell if Jamie does so based on a high standard of ethical conduct. Jamie never solicits views that would challenge his positions. Jamie has a history of ignoring different points of view and overlooking relevant data when coming to conclusions.
Option 1: Continue Project B. The present value of its revised net annual future cash inflows for the remaining three years is $144,327. (Others in your firm or industry, including the Jones Corporation, will NOT know of Project B's unprofitable performance for the three years remaining until its completion. Option 1 will, therefore, delay any possible damage to your project management reputation, job security, and marketability resulting from Project B's performance until long after negotiations with the Jones Corporation are completed.)
Option 2: Discontinue Project B.
68
The present value of its machinery at the current time (end of Year 4), which can be sold for cash, is $177,500. (Option 2 will quickly communicate to others that Project B is a failure, which will immediately damage your project management reputation, job security, and marketability, and cause the Jones Corporation to withdraw from the confidential negotiations in progress.)
What is Your Decision? Will you continue (Option 1) or discontinue (Option 2) Project B? (Please circle ONLY ONE of the numbers [1 to 10] on the scale below. A value from 1 to 5 indicates a continue decision, while a value of 6 to 10 indicates a discontinue decision. A value of 1 or 10 indicates a definite response.)
Option 1 (Continue)
Option 2 (Discontinue)
1
2
3
4
5
6
7
8
9
10
Definitely
Definitely
69
Exhibit 2
(High Authentic Leadership, Adverse selection conditions)
Your Position You are a junior project manager with the Williams 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 benefits, for the Williams Company is aware that an active market for highly talented project managers exists in your industry. When a project that is managed by a junior project manager fails, this damages the individual's project management 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 a highly talented project manager stimulated another firm, the Jones Corporation, to initiate confidential discussions about recruiting you to a more important position with a substantially higher salary.
The Project
Four years ago, you initiated Project B, which you still manage, with the following projected cash flows:
Cash Flow
Year
0
1
2
3
4
5
6
7
Investment
(1,000,000)
Net Cash Flows
270,000 270,000 270,000 270,000 270,000 270,000 270,000
Salvage Value
50,000
At that time, with a discount rate of 16 % Project B was predicted to have a Net Present Value of $108,100 over its full seven-year life. Performance has been above expectations during the first four years, with annual net cash inflows of $320,000. As project manager you possess information which indicates that Project B's net cash inflows will sharply decline and be only $50,000 each year for the remaining three years of its lifetime. This information is known only to you as project manager and is NOT available to others in your company and industry.
Your Decision Task At the end of the fourth year of operations of Project B you are reviewing its status given your information about its decline in cash flows for the remaining three years (Years 5, 6 & 7). You have two options available to you. You will have to report the option you choose to Jamie, who is your immediate supervisor. Jamie, like most typical mangers, is mostly concerned with meeting targets for increasing market share and profits. He also focuses on meeting earnings and growth projections while reiterating the need to meet such goals in order to be rewarded by the company. Jamie regularly seeks feedback from you, in order to improve the interactions between the two of you. When speaking of his own capabilities, Jamie is usually accurate in describing his strengths and weaknesses. He also speaks to you candidly and is able to admit when he makes a mistake. Jamie emphasizes the need for everyone on his team to speak their mind and frequently displays his own true emotions. Jamie's actions on the job are consistent with moral beliefs he has established as an individual and as a result he makes decisions based on his core values and asks that you do the same. When making difficult decisions it is visible that Jamie does so based on a high standard of ethical conduct. However, Jamie does solicit views from you and others that challenge his positions. Jamie has a history of listening to different points of view and analysing all relevant data before coming to conclusions.
Option 1: Continue Project B. The present value of its revised net annual future cash inflows for the remaining three years is $144,327. (Others in your firm or industry, including the Jones Corporation, will NOT know of Project B's unprofitable performance for the three years remaining until its completion. Option 1 will, therefore, delay until long after negotiations with the Jones Corporation are completed any possible damage to your project management reputation, job security, and marketability resulting from Project B's performance.)
Option 2: Discontinue Project B.
70
The present value of its machinery at the current time (end of Year 4), which can be sold for cash, is $177,500. (Option 2 will quickly communicate to others that Project B is a failure, which will immediately damage your project management reputation, job security, and marketability, and cause the Jones Corporation to withdraw from the confidential negotiations in progress.)
What is Your Decision? Will you continue (Option 1) or discontinue (Option 2) Project B? (Please circle ONLY ONE of the numbers [1 to 10] on the scale below. A value from 1 to 5 indicates a continue decision, while a value of 6 to 10 indicates a discontinue decision. A value of 1 or 10 indicates a definite response.)
Option 1 (Continue)
Option 2 (Discontinue)
1
2
3
4
5
6
7
8
9
10
Definitely
Definitely
71
Exhibit 3
(Low Authentic Leadership, No Adverse selection conditions) Your Position You are a senior project manager with the Williams 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 benefits, for the Williams Company is aware that an active market for highly talented project managers exists in your industry. Over a period of ten years, nearly all of the projects you have initiated and managed have been successful. When, however, a project under your control has been projected to be unprofitable, you have discontinued it to minimize losses. As a result, you have gained a very solid industry-wide reputation as a highly talented project manager who also knows how to minimize losses.
The Project
Four years ago, you initiated Project B, which you still manage, with the following projected cash flows:
Cash Flow
Year
0
1
2
3
4
5
6
7
Investment
(1,000,000)
Net Cash Flows
270,000 270,000 270,000 270,000 270,000 270,000 270,000
Salvage Value
50,000
At that time, with a discount rate of 16 % Project B was predicted to have a Net Present Value of $108,100 over its full seven-year life. Performance has been above expectations during the first four years, with annual net cash inflows of $320,000. The most recent projections indicate, however, that Project B's net cash inflows will sharply decline and be only $50,000 each year for the remaining three years of its lifetime. Williams Company's policy is to make such information public. Several days ago, Williams Company made information about Project B's expected future performance widely known to others in your firm and industry. This has had no effect on your very solid industry-wide reputation.
Your Decision Task At the end of the fourth year of operations of Project B, you are reviewing its status given your information about its decline in cash flows for the remaining three years (Years 5, 6 & 7). You have two options available to you. You will have to report the option you choose to Jamie, who is your immediate supervisor. Jamie, like most typical mangers, is mostly concerned with meeting targets for increasing market share and profits. He also focuses on meeting earnings and growth projections while reiterating the need to meet such goals in order to be rewarded by the company. Jamie rarely seeks feedback from you, or looks to improve the interactions between the two of you. When speaking of his own capabilities, Jamie is usually inaccurate in describing his strengths and weaknesses. He also finds it difficult to admit when he makes a mistake. Jamie does not emphasize the need for everyone on his team to speak their mind and his true emotions are difficult to read. Jamie's actions on the job are inconsistent with moral beliefs he has established as an individual and as a result he sometimes makes decisions that contradict his core values. When making difficult decisions it is hard to tell if Jamie does so based on a high standard of ethical conduct. Jamie never solicits views that would challenge his positions. Jamie has a history of ignoring different points of view and overlooking relevant data when coming to conclusions.
Option 1: Continue Project B. The present value of its revised net annual future cash inflows for the remaining three years is $144,327. (Others will know of Project B's unprofitable performance as it occurs during the three years remaining until its completion.)
Option 2: Discontinue Project B. The present value of its machinery at the current time (end of Year 4), which can be sold for cash, is $177,500. (Project B's future unprofitable performance is already widely known. This will, however, have no effect on your very solid industry-wide project management reputation as a highly talented project manager who also knows how to minimize losses.)
72
What is Your Decision? Will you continue (Option 1) or discontinue (Option 2) Project B? (Please circle ONLY ONE of the numbers [1 to 10] on the scale below. A value from 1 to 5 indicates a continue decision, while a value of 6 to 10 indicates a discontinue decision. A value of 1 or 10 indicates a definite response.)
Option 1 (Continue)
Option 2 (Discontinue)
1
2
3
4
5
6
7
8
9
10
Definitely
Definitely
73
Exhibit 4
(High Authentic Leadership, No Adverse selection conditions) Your Position You are a senior project manager with the Williams 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 benefits, for the Williams Company is aware that an active market for highly talented project managers exists in your industry. Over a period of ten years, nearly all of the projects you have initiated and managed have been successful. When, however, a project under your control has been projected to be unprofitable, you have discontinued it to minimize losses. As a result, you have gained a very solid industry-wide reputation as a highly talented project manager who also knows how to minimize losses.
The Project
Four years ago, you initiated Project B, which you still manage, with the following projected cash flows: -
Cash Flow
Year
0
1
2
3
4
5
6
7
Investment
(1,000,000)
Net Cash Flows
270,000 270,000 270,000 270,000 270,000 270,000 270,000
Salvage Value
50,000
At that time, with a discount rate of 16 % Project B was predicted to have a Net Present Value of $108,100 over its full seven-year life. Performance has been above expectations during the first four years, with annual net cash inflows of $320,000. The most recent projections indicate, however, that Project B's net cash inflows will sharply decline and be only $50,000 each year for the remaining three years of its lifetime. Williams Company's policy is to make such information public. Several days ago, Williams Company made information about Project B's expected future performance widely known to others in your firm and industry. This has had no effect on your very solid industry-wide reputation.
Your Decision Task At the end of the fourth year of operations of Project B, you are reviewing its status given your information about its decline in cash flows for the remaining three years (Years 5, 6 & 7). You have two options available to you. You will have to report the option you choose to Jamie, who is your immediate supervisor. Jamie, like most typical mangers, is mostly concerned with meeting targets for increasing market share and profits. He also focuses on meeting earnings and growth projections while reiterating the need to meet such goals in order to be rewarded by the company. Jamie regularly seeks feedback from you, in order to improve the interactions between the two of you. When speaking of his own capabilities, Jamie is usually accurate in describing his strengths and weaknesses. He also speaks to you candidly and is able to admit when he makes a mistake. Jamie emphasizes the need for everyone on his team to speak their mind and frequently displays his own true emotions. Jamie's actions on the job are consistent with moral beliefs he has established as an individual and as a result he makes decisions based on his core values and asks that you do the same. When making difficult decisions it is apparent that Jamie does so based on a high standard of ethical conduct. However, Jamie does solicit views from you and others that challenge his positions. Jamie has a history of listening to different points of view and analysing all relevant data before coming to conclusions.
Option 1: Continue Project B. The present value of its revised net annual future cash inflows for the remaining three years is $144,327. (Others will know of Project B's unprofitable performance as it occurs during the three years remaining until its completion.)
Option 2: Discontinue Project B. The present value of its machinery at the current time (end of Year 4), which can be sold for cash, is $177,500. (Project B's future unprofitable performance is already widely known. This will, however, have no effect on your very solid industry-wide project management reputation as a highly talented project manager who also knows how to minimize losses.)
74
What is Your Decision?
Will you continue (Option 1) or discontinue (Option 2) Project B? (Please circle ONLY ONE of the numbers
[1 to 10] on the scale below. A value from 1 to 5 indicates a continue decision, while a value of 6 to 10 indicates a
discontinue decision. A value of 1 or 10 indicates a definite response.)
Option 1 (Continue)
Option 2 (Discontinue)
1
2
3
4
5
6
7
8
9
10
Definitely
Definitely
75 Exhibit 5 Please read each statement and decide how much you agree or disagree with that statement. Then write your response in the space next to the statement using the following scale: 5 = strongly agree 4 = agree 3 = neutral 2 = disagree 1 = strongly disagree If I knew that I could never get caught, I would be willing to steal a million dollars. ____ Having a lot of money is not especially important to me. ____ I wouldn't use flattery to get a raise or promotion at work, even if I thought it would succeed. ____ If I want something from someone, I will laugh at that person's worst jokes. ____ I would never accept a bribe, even if it were very large. ____ I think that I am entitled to more respect than the average person is. ____ I wouldn't pretend to like someone just to get that person to do favors for me. ____ I'd be tempted to use counterfeit money, if I were sure I could get away with it. ____ I would get a lot of pleasure from owning expensive luxury goods. ____ I want people to know that I am an important person of high status. ____
76
Demographic and Case-Related Questionnaire
What is your current job title? ______________________________________________
How many years of professional work experience do you have overall? ______ years
How many years have you worked at your current job? _______ years
What is your gender? (Circle your answer) Male Female
What is your age? ______ years
What is the highest level of education you attained? ______________________________
Without looking back to the decision case you have just reviewed, please answer the following questions. Please indicate your response by marking only one option box for each question.
In the case, it stated that the information on projected cash flows and expected future performance for the project were:
known only to you as the project manager. widely known to others in your firm and industry.
In the case, it stated that information on would a failed project, when it becomes known, would:
have little or no effect on your reputation, job security and marketability as a manager. have a damaging effect on your reputation job security and marketability as a manager.
Write the number that best describes how much you agree or disagree with this statement.
12
3
4
5
6
7 8 9 10
Disagree strongly
Agree strongly
I feel continuing an unprofitable project is morally/ethically wrong._____ I feel that a manager's influence on employee decision making is important._____ I feel that my immediate supervisor is able to influence my judgment. _____
Think about Jamie, your immediate supervisor in Williams Company. Judge how frequently each statement fits his or her leadership style using the following scale:
Not at all 0
Once in a while 1
Sometimes Fairly often Frequently, if not always
2
3
4
77
Jamie:
1. says exactly what he or she means. ....................................... 0 1 2 3 4
2. admits mistakes when they are made. .................................... 0 1 2 3 4
3. encourages everyone to speak their mind. ............................. 0 1 2 3 4
4. tells you the hard truth. ........................................................... 0 1 2 3 4
5. displays emotions exactly in line with feelings. ....................... 0 1 2 3 4
6. demonstrates beliefs that are consistent with actions. ............ 0 1 2 3 4
7. makes decisions based on his or her core values. .................. 0 1 2 3 4
8. asks you to take positions that support your core values. ....... 0 1 2 3 4
9. makes difficult decisions based on high standards of
ethical conduct. ......................................................................
01234
10. solicits views that challenge his or her deeply held positions. . 0 1 2 3 4
11. analyzes relevant data before coming to a decision. .............. 0 1 2 3 4
12. listens carefully to different points of view before
coming to conclusions. ...........................................................
01234
13. seeks feedback to improve interactions with others. ............... 0 1 2 3 4
14. accurately describes how others view his or her capabilities. . 0 1 2 3 4
15. knows when it is time to reevaluate his or her positions
on important issues. ...............................................................
01234
16. shows he or she understands how specific actions
impact others. ......................................................................... 0 1 2 3 4
Respond to the statements below considering what your feelings would be if you actually reported to Jamie while working at the Williams Company.
1
2
3
4
5
6
7
Disagree strongly
Agree
strongly
If someone were to praise Williams Company, it would feel like a personal compliment.____ If someone were to criticize Williams Company, it would feel like a personal insult.____ I would be very interested in what others think about Williams Company.____ If I talked about Williams Company, I would usually say "we" rather than "they".____ If Williams company had successes they would be my successes.____ If a story in the media criticized Williams Company, I would feel embarrassed.____ I would be comfortable giving Jamie a task or problem which was critical to me, even if I could not monitor his actions. ____ I would be willing to make considerable emotional investments in my working relationship with Jamie.____
I would feel guilty for choosing Option 1(Continuing the project) ____ I would not want to disappoint Jamie. ____ I would enjoy working for Jamie.____ I would like Jamie as my supervisor.____
78 I would set goals for myself within Williams Company.____ I would spend time planning for my future within Williams Company.____ I feel that it is the norm for managers supervised by Jamie to make ethically correct decisions.____ I feel an obligation to make ethically correct decisions because I am a member of Jamie's group.____ Please rank the following four items in terms of how important they were to making your project continuation decision. (1= most important, 4= least important) ____ Jamie's awareness or lack thereof of his own capabilities and influence ____ Jamie's aptitude or lack thereof to be candid and honest ____ The fact that Jamie does or does not usually consider all relevant viewpoints and data ____ The fact that Jamie does or does not have high moral standards for himself Please comment on any aspect of the decision, Jamie, or yourself that you believe played a part in your decision of whether or not to continue the project. ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ _____________________________________________________________________
79 Table 1: Demographic Data Panel A: Full Sample Demographic Data
Demographic Variable Professional work experiencea Current Job Experienceb Agec Moral Reasoning d
Sample Mean 9.20 4.25 31.83 2.51
Standard Deviation 8.64 4.96 8.68 .567
a Professional work experience measured in years. b Current Job experience measured in years. c Age measured in years. d Participants responses to several items from the HEXACO scale were averaged. (1 = "Most moral" and 5 = "least moral").
Male Female
n
Percent
59
50
59
50
Panel B: Demographic Data by Group
Dependent Variable Professional work experiencea Ageb Moral Reasoningc
Mean (SD) Mean (SD) Mean (SD)
Adverse Selection Condtions Present Low AL (Group 1) 12.55 (10.35) 34.40 (9.89) 2.55 (.50)
Adverse Selection Condtions Present High AL (Group 2) 9.90 (9.94) 32.05 (9.36) 2.62 (.68)
Adverse Selection Condtions Not Present Low AL (Group 3) 8.00 (6.81) 30.90 (6.95) 2.50 (.53)
Adverse Selection Condtions Not Present High AL (Group 4) 7.50 (7.83) 30.45 (7.70) 2.49 (.71)
F
p-
Value value
1.931 0.132
1.446 0.236
.927 0.432
a Professional work experience measured in years. b Participants responded on a ten-point scale (1 = "not at all familiar" and 10 = "very familiar"). c Participants responded on a ten-point scale (1 = "not at all experienced" and 10 = "very experienced").
80 Table 2: Testing of Hypothesis One
PANEL A: Mean (Standard Deviation) Organizational Identificationa
Mean (SD) n
Authentic Leadershipb
Low
High
4.69 (1.18) 40
5.27 (1.01) 40
Total 4.98 (1.13) 80
PANEL B: ANOVA Results For Authentic Leadership
Source
df
Overall Model
1
Authentic Leadership 1
Error
78
Mean Squares 6.613 6.613 1.204
Fstatistic 5.492 5.492
p-valuec .011 .011
a Organizational Identification was measured using an adapted version of mael & ashforth's organizational identification measure (1992). b Authentic leadership was manipulated through a description of the subjects' supervisor tendencies to be either consistent (high) or inconsistent (low) with those of an authentic leader. c All reported p-values are based on one-tailed tests due to the directional nature of the hypothesis.
81 Table 3: Testing of Hypothesis Two
PANEL A: Mean (Standard Deviation) Likelihood of Continuing the Projecta
Authentic Leadershipb
Low
High
Total
Mean (SD) n
6.25 (2.76) 40
7.07 (2.20) 40
6.66 (2.52) 80
PANEL B: ANOVA Results for Authentic Leadership
Source
df
Overall Model
1
Authentic Leadership 1
Error
78
Mean Squares 13.613 6.613 1.204
Fstatistic 2.183 5.492
p-valuec .072 .072
a Subjects responded on a 10-point scale indicating their likelihood to either continue or discontinue a the failing project. b Authentic leadership was manipulated through a description of the subjects' supervisor tendencies to be either consistent (high) or inconsistent (low) with those of an authentic leader. c All reported p-values are based on one-tailed tests due to the directional nature of the hypothesis.
82 Table 4: Testing of Hypothesis Three
PANEL A: Mean (Standard Deviation) Likelihood of Continuing the Projecta across Conditions
Adverse Selection Conditionsc Present Not Present Total
Mean (SD) n Mean (SD) n Mean (SD) n
Authentic Leadershipb
Low Cell 1 4.8 (2.69) 20 Cell 3 7.7 (2.00) 20 6.25 (2.76) 40
High Cell 2 7.3 (2.15) 20 Cell 4 6.85 (2.27) 20 7.08 (2.20) 40
Total 6.05 (2.72) 40 7.28 (2.16) 40
PANEL B: ANOVA Results For Adverse Selection Conditions and Authentic Leadership
Source
df
Overall Model
3
Authentic Leadership 1
Adverse Selection
1
Auth Leader x
Adverse Selection
1
Error
76
Mean Squares 33.246 13.613 30.013
Fstatistic 6.314 2.585 5.700
p-valued <0.001 0.056 0.010
56.133 10.657 5.265
0.001
a Subjects responded on a 10-point scale indicating their likelihood to either continue or discontinue a the failing project. b Authentic leadership was manipulated through a description of the subjects' supervisor tendencies to be either consistent (high) or inconsistent (low) with those of an authentic leader. c Motive (external job offer) and opportunity (information asymmetry) were simultaneously manipulated as present or not present. d All reported p-values are based on one-tailed tests due to the directional nature of the hypothesis.
83 Table 5: Testing of Interaction between Authentic Leadership and Perception of Ethicalness of Continuation Decision PANEL A: Mean (Standard Deviation) Likelihood of Continuing the Projecta Across Conditions
Perception of Decision Ethicalnessc No Ethical Tension Ethical Tension Total
Mean (SD) n Mean (SD) n Mean (SD) n
Authentic Leadershipb
Low Cell 1 4.94 (2.817) 18 Cell 3 7.32 (2.255) 22 6.25 (2.762) 40
High Cell 2 6.94 (2.600) 18 Cell 4 7.18 (1.868) 22 7.07 (2.200) 40
Total 5.94 (2.858) 36 7.25 (2.047) 44
PANEL B: ANOVA Results For Perception of Decision Ethicalness and Authentic Leadership
Source
df
Overall Model
3
Authentic Leadership 1
Ethical Tension
1
Auth Leader x Ethical
Tension
1
Error
76
Mean Squares 23.318 17.192 33.749
Fstatistic 4.122 3.039 5.966
p-valued 0.009 0.085 0.017
56.133 5.265
3.994
0.049
a Subjects responded on a 10-point scale indicating their likelihood to either continue or discontinue a the failing project. b Authentic leadership was manipulated through a description of the subjects' supervisor tendencies to be either consistent (high) or inconsistent (low) with those of an authentic leader. c Subjects responded on a 10-point scale indicating whether they perceived the continuing of a unprofitable project as ethically wrong (1=Disagree strongly, 10=Agree strongly). The variable was dichotomized by splitting it at the mean (5.901). Responses of less than six are assigned to the No Ethical Tension group. d All reported p-values are based on one-tailed tests due to the directional nature of the hypothesis.

RP Roberts

File: the-impact-of-authentic-leadership-and-adverse-selection-conditions.pdf
Title: The impact of authentic leadership and adverse selection conditions on escalation of commitment
Author: RP Roberts
Author: Roberts, Ross P.
Keywords: Advisors: George Tsakumis, Anna Cianci, Christopher Agoglia, Barbara Grein, Edward Werner, Jonathan Zeigert.
Published: Sat Jun 2 19:19:26 2012
Pages: 91
File size: 0.37 Mb


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