A note on the impact of the internal organization on the accuracy of the information transmitted within the firm

Alonso-Pauli, Eduard and Bru, Lluís (2019): A note on the impact of the internal organization on the accuracy of the information transmitted within the firm.

Abstract

We investigate the incentives sales managers have to transmit information on demand conditions to headquarters under different organizational structures, and its subsequent impact on firm performance. When headquarters chooses quantities, their interests are aligned and reliable information is transmitted. When the choice of quantities is delegated to the sales manager, instead, he prefers not to transmit reliable information and as a consequence, headquarters set transfer prices having poor information about demand. We then see that, due to this difference in the quality of the information available to headquarters, the centralized organization frequently has the best performance.

• Item Type: MPRA Paper
• Language: English
• Keywords: Organizational structure, transfer pricing, information transmission, internal accounting system.
• Subjects: D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M2 - Business Economics > M21 - Business Economics

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