Communication in Agencies

Christensen, John

doi:10.2307/3003580

Cited by 145 publications

(60 citation statements)

References 2 publications

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“…Several agency-theoretical studies show that pre-decision information may discourage agents if they are risk-averse (Bushman et al, 2000;Datar, 2000;Christensen, 1981;Baiman and Sivaramakrishnan, 1991;Penno, 1984, 1990and Baiman and Evans, 1983. Our model differs from these studies in two respects.…”

Section: Motivationcontrasting

confidence: 50%

“…Therefore, a first, important conclusion of our analysis is that, under certain conditions, not funding the information system may constitute a subtle way of protecting firm-specific investments. In our model, as in Christensen (1981), pre-decision information can undermine an agent's incentives to contribute to firm value. Nevertheless, contrary to Christensen (1981), negative incentive effects in our model are not attributable to the agent's risk aversion.…”

mentioning

confidence: 99%

“…In our model, as in Christensen (1981), pre-decision information can undermine an agent's incentives to contribute to firm value. Nevertheless, contrary to Christensen (1981), negative incentive effects in our model are not attributable to the agent's risk aversion. In our model, pre-decision information is detrimental because it undermines the incentives of risk-neutral agents to make firmspecific investments.…”

mentioning

confidence: 99%

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Information management with specific investments and cost-based transfer prices

Hinss

Kunz

Pfeiffer

2005

European Accounting Review

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We analyse information flows in a profit-centre organisation with internal trade between two risk-neutral divisions. Prior to production, the divisions make unverifiable investments in intrafirm synergies. After investments are made, the selling division announces a cost-based transfer price which includes a mark-up on variable costs. The buying division then decides what quantity to purchase at that unit cost. From the head office's perspective, the key issues are to influence both, divisional investments and the seller's manipulation of the mark-up. To do so, the head office can fund a pre-decision information system bef ore divisional investments are made. The system produces forward-looking information that can be used to improve the divisions' investments decisions, but which cannot be used in evaluating their performance. Our analytical framework allows us to identify cost and revenue structures for which pre-decision information either supports or destroys intrafirm synergies by motivating or discouraging divisional investments, thereby resulting in an increase in, decrease in, or in no impact whatsoever on, firm profit. Among our most interesting findings is the counterintuitive result that pre-decision information can undermine the incentives of risk-neutral agents to invest specifically. Our results add to earlier agency models that found different, albeit equally dysfunctional effects of pre-decision information. Contrary to these studies, our findings are not driven by either risk aversion or rent extraction.

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Section: Motivationcontrasting

confidence: 50%

mentioning

confidence: 99%

mentioning

confidence: 99%

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Information management with specific investments and cost-based transfer prices

Hinss

Kunz

Pfeiffer

2005

European Accounting Review

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“…This paper is devoted to exploring how principals may select contracts to induce managers to make optimal investment decisions, when managers privately observe information which is informative both ab out their own ability and about the value of projects which they may choose to undertake. -Our paper is most closely related to recent papers by Holmstrom and Ricart i Costa [1986] and Christensen [1981] [1982]. Holmstrom and Ricart i Costa consider a model where managers are employed by principals in a firm which lasts for an arbitrary number of periods (at least two).…”

Section: Introductionmentioning

confidence: 95%

Incentive contracts for managers who discover and manage investment projects

Campbell

Chan

Marino

1989

Journal of Economic Behavior & Organization

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“…Christensen (1981) analyzes a model where pre-decision information can also be negative, because it allows the agent to exert just enough e¤ort to reach a certain target. None of these papers look at contracts designed to in ‡uence the agent's information acquisition.…”

Section: Introductionmentioning

confidence: 99%

Performance Measurement and Information Production

Laux

2005

SSRN Journal

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When performance measures are used for evaluation purposes, agents have some incentives to learn how their actions affect these measures. We show that the use of imperfect performance measures can cause an agent to devote too many resources (too much effort) to acquiring information. Doing so can be costly to the principal because the agent can use information to game the performance measure to the detriment of the principal. We analyze the impact of endogenous information acquisition on the optimal incentive strength and the quality of the performance measure used.

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Communication in Agencies

Cited by 145 publications

References 2 publications

Information management with specific investments and cost-based transfer prices

Information management with specific investments and cost-based transfer prices

Incentive contracts for managers who discover and manage investment projects

Performance Measurement and Information Production

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