Jensen and Meckling (1992) hypothesize that the finn's decentralization decision is determined by a tradeoff of knowledge transfer costs and control (agency) costs. To maximize value, either knowledge must be transferred to those with the right to make decisions or decision rights must be transferred to those who have the knowledge. We identify characteristics of firms' investment opportunity sets that affect knowledge transfer and control costs and generate testable predictions about the relations between these characteristics and firms' decentralization decisions. The evidence we present is generally consistent with our predictions and is robust to different ways of measuring variables.* University of Rochester. + Union Bank of Switzerland. Financial support was provided by the John M. 0';" Foundation and the Bradley Research Center of the University of Rochester. We thank Mike ~a :ny, Ron Dye,

Cost and management accounting practices are being criticised for their deficiencies in providing firms with high‐quality information for decisionmaking. While empirical data exist for overseas countries, little information, if any, is available for Australian companies. This paper reports the results of a survey addressed in November 1989 to the 2,000 largest Australian manufacturing companies. A contingency approach (using firm size, diversification, decentralisation, international exposure and industry as contingent variables) is suggested to explain various cost‐allocation practices. Responses from 430 firms provided the information used in this study.

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