How managers’ risk perceptions affect their willingness to blame advisors as scapegoats
Section snippets
Introduction and background
Business consulting represents a significant industry, which created revenues of 188 billion USD worldwide in 2018 (Healey, Williams, Sullivan, & Blackmore, 2019). Managers usually hire external experts to help them make better-informed decisions. However, managers may have other motives for consulting advisors. One motive underlying managers’ decision to seek such advice, which is often discussed but hardly empirically tested, is that they do so to be able to blame the advisor as a scapegoat.
Investment decision-making for internal capital allocations
In this paper, we argue that managers' use of advice depends on their advisors’ blame potential and the perceived riskiness of an investment decision. Deciding how much financial capital is invested in each internal corporate division is an essential task for managers (Busenbark, Wiseman, Arrfelt, & Woo, 2017). Busenbark et al. (2017) report that the predominant internal capital allocation strategies are winner-picking and diversification.3
Experimental design
We use a two-step experiment to study whether managerial blame avoiding advice-taking is influenced by the advisors’ blame potential and the perceived riskiness of an investment decision. The participants were first asked to make a preliminary investment decision on their own. Then, they received advice and had the opportunity to adjust their preliminary decision. Such an experimental setup is commonly used in the literature (Bonaccio & Dalal, 2006; Schultze, Mojzisch, & Schulz-Harald, 2017).
Manipulation checks
The participants perceived less risk for the “Stable Solutions” investment plan than for the “New Technology” investment plan (t (174) = −8.17, p < 0.001) and recognized the economic boom and the economic crisis (t (173) = −10.29, p < 0.001).18 There were no differences in participants’ risk propensity between the economic boom and economic crisis (t (173) = −0.03, p = 0.973). This indicates that both the manipulation and the
Discussion of the results of the preliminary investment decision
In our experiment, the manager participants realized the riskiness of their preliminary investment decision. The riskier their preliminary investment decision, the higher the risk they perceived (see Table 2). However, the participants perceived higher risk in the economic boom than in the economic crisis (t (173) = −1.90, p = 0.059), and they allocated their investment budget more defensively in the economic boom than in the economic crisis (10.70 vs. 11.32, see Table 2). These findings
Declaration of competing interest
The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.
Acknowledgments
We would like to thank the editors and three anonymous reviewers for their support. We also thank Jörn Basel and Georg Loscher for their helpful comments and advice on early drafts of the article. We are also grateful for the feedback given by discussants at the 10th Empirical Research in Management Accounting & Control Conference and at the Monforma2020 conference.
This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.
References (41)
- et al.
The enduring impact of transient emotions on decision making
Organizational Behavior and Human Decision Processes
(2009) - et al.
Advice taking and decision-making: An integrative literature review, and implications for the organizational sciences
Organizational Behavior and Human Decision Processes
(2006) - et al.
Capital allocation and delegation of decision-making authority within firms
Journal of Financial Economics
(2015) - et al.
Taking advice: Accepting help, improving judgment, and sharing responsibility
Organizational Behavior and Human Decision Processes
(1997) - et al.
The impact of clawback provisions on information processing and investment behaviour
Management Accounting Research
(2017) From babes and sucklings: Management consultants and novice clients
European Management Journal
(2006)- et al.
Other-serving bias in advice-taking: When advisors receive more credit than blame
Organizational Behavior and Human Decision Processes
(2015) - et al.
Whom to dismiss? CEO celebrity and management dismissal
Journal of Business Research
(2014) - et al.
Passing the buck: Delegating choices to others to avoid responsibility and blame
Organizational Behavior and Human Decision Processes
(2016) - et al.
C. Y. A.: Frequency and causes of defensive decisions in public administration
Business Research
(2019)
Shifting the blame: On delegation and responsibility
The Review of Economic Studies
Sadness and susceptibility to judgmental bias: The case of anchoring
Psychological Science
A review of the internal capital allocation literature: Piecing together the capital allocation puzzle
Journal of Management
The value of organizational reputation in the recruitment context: A brand‐equity perspective
Journal of Applied Social Psychology
The costly pursuit of self-esteem
Psychological Bulletin
Blamestorming, blamemongers and scapegoats
Moody experts - how mood and expertise influence judgmental anchoring
Judgment and Decision Making
Original and cumulative prospect theory: A discussion of empirical differences
Journal of Behavioral Decision Making
Of scapegoats and signals: Investor reactions to CEO succession in the aftermath of wrongdoing
Journal of Management
Cited by (0)
- 1
The data and experimental material are available upon request.