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

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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. Utilizingsocial 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 additional methods to reduce unethical decision making, specifically the continuing of failing projects.%%%%Ph.D., Accounting – Drexel University, 2012