ISSN 2736-1721
Global Journal of Business Management ISSN 6731-4538 Vol. 8 (6), pp. 001-007, June, 2014. © International Scholars Journals
Full Length Research Paper
The impact of myopic loss aversion on continuing a troubled research and development expenditure
Kuo-Chih Cheng* and Kuang-Ku Chen
Department of Accountancy, National Changhua of Education University, Changhua 500, Taiwan.
Accepted 16 December, 2013
Abstract
Research and development (R&D) expenditure involve much risk and uncertainty. Failure of a research and development project is a common and dreaded question in innovation processes as a result of causing large losses to businesses. This study explored whether shortening evaluation periods could reduce the willingness of managers of research and development expenditure in continuing a troubled research and development project. The study employed 180 senior managers of high-tech companies as subjects of experimental test. The results indicate that continuing a risky investment decision is less likely in the context of a shorter evaluation period (myopic condition) because decision-makers will experience more frequent losses, leading to the tendency of decision-makers to avoid risk. The theory of ‘myopic loss aversion’ is useful in explaining this phenomenon.
Key words: Evaluation period; level of project completion; myopic loss aversion, risky decision, research and development expenditure.