Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/288053 
Year of Publication: 
2023
Citation: 
[Journal:] Contemporary Accounting Research [ISSN:] 1911-3846 [Volume:] 40 [Issue:] 3 [Publisher:] John Wiley & Sons, Inc. [Place:] Hoboken, USA [Year:] 2023 [Pages:] 1760-1794
Publisher: 
John Wiley & Sons, Inc., Hoboken, USA
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.
Subjects: 
budgeting
hold‐up
performance evaluation
transfer pricing
budgétisation
établissement de prix de transfert
évaluation de la performance
problème de renonciation
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article
Document Version: 
Published Version

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