{"title":"Managerial performance evaluation and organizational form","authors":"Michael Krapp, Wolfgang Schultze, Andreas Weiler","doi":"10.1111/1911-3846.12873","DOIUrl":null,"url":null,"abstract":"<p>We study the relative efficiency of centralized versus decentralized organizational forms given optimized managerial performance evaluation within an incomplete contracting framework with risk-averse agents under moral hazard. Decentralization and performance evaluation are complementary control choices and the efficiency of an organizational form depends on the design of performance evaluation. Divisions can make relationship-specific investments that not only improve firm performance, but also increase compensation risk. We find that pure divisional performance evaluation is optimal under centralization, whereas under decentralization, optimal compensation contracts include a combination of divisional and firm-wide performance evaluation. When comparing both organizational forms, we find that the optimal form depends on managers’ degree of risk-aversion and the uncertainty of the business environment. Contrary to previous literature, we find that centralization dominates in many situations, particularly at high degrees of risk-aversion and high uncertainty.</p>","PeriodicalId":10595,"journal":{"name":"Contemporary Accounting Research","volume":null,"pages":null},"PeriodicalIF":3.2000,"publicationDate":"2023-05-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/1911-3846.12873","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Contemporary Accounting Research","FirstCategoryId":"91","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1111/1911-3846.12873","RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
We study the relative efficiency of centralized versus decentralized organizational forms given optimized managerial performance evaluation within an incomplete contracting framework with risk-averse agents under moral hazard. Decentralization and performance evaluation are complementary control choices and the efficiency of an organizational form depends on the design of performance evaluation. Divisions can make relationship-specific investments that not only improve firm performance, but also increase compensation risk. We find that pure divisional performance evaluation is optimal under centralization, whereas under decentralization, optimal compensation contracts include a combination of divisional and firm-wide performance evaluation. When comparing both organizational forms, we find that the optimal form depends on managers’ degree of risk-aversion and the uncertainty of the business environment. Contrary to previous literature, we find that centralization dominates in many situations, particularly at high degrees of risk-aversion and high uncertainty.
期刊介绍:
Contemporary Accounting Research (CAR) is the premiere research journal of the Canadian Academic Accounting Association, which publishes leading- edge research that contributes to our understanding of all aspects of accounting"s role within organizations, markets or society. Canadian based, increasingly global in scope, CAR seeks to reflect the geographical and intellectual diversity in accounting research. To accomplish this, CAR will continue to publish in its traditional areas of excellence, while seeking to more fully represent other research streams in its pages, so as to continue and expand its tradition of excellence.