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Summary of Papers by EC
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Summary of Papers by EC
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EC1 – The Kick-OffNo required readings
EC 2 – The Three-Legged Stool
No required readings
EC 3 – Designing Your Organization
Graham, Harvey & Puri (2015)
Capital Allocation and Delegation of Decision-Making Authority within Firms
Overview
This study examines how CEOs delegate decision-making authority, especially
regarding capital allocation and financial decisions. The research uses data from
a large survey of over 1,000 CEOs and CFOs across the globe, analyzing how
delegation varies across different types of financial decisions.
Key Points:
CEOs are more likely to delegate decisions that require substantial input
from lower levels of management or where they feel less knowledgeable,
such as investment decisions and capital allocation.
However, CEOs tend to retain control over mergers and acquisitions (M&A),
which are considered more strategic and where they feel their involvement
is critical.
The likelihood of delegation is also influenced by CEO workload—CEOs who
are overloaded or distracted by recent acquisitions are more likely to
delegate financial decisions to other executives.
Personal characteristics, such as tenure and expertise in finance, affect
how much CEOs delegate. Longer-tenured CEOs or those with financial
backgrounds are less likely to delegate key decisions.
Key Takeaways:
Delegation of decision-making authority within firms is not uniform and
depends on the complexity of the decision and the CEO’s capacity and
expertise.
Delegation is more common for decisions that require detailed, internal
information, such as capital allocation, while strategic decisions like M&A
are often retained by the CEO.
Firms need to balance delegation and control carefully, ensuring that CEOs
delegate effectively while retaining oversight of critical decisions.
Conclusion:
Effective delegation is a crucial aspect of corporate governance, but it varies
depending on the nature of the decision and the CEO’s experience and workload.
This research highlights the importance of strategic delegation to enhance
decision-making within large firms
,Bartling, Fehr & Herz (2014)
The Intrinsic Value of Decision Rights
Overview
This paper investigates whether individuals value decision rights (the ability to
make decisions) beyond their instrumental benefits (i.e., the ability to influence
outcomes). The study uses experimental methods to measure how much
individuals intrinsically value having control over decisions, even when it does
not affect their financial outcomes.
Key Points:
The experiments reveal that the majority of participants value decision-
making rights beyond their monetary or instrumental worth. This intrinsic
value of decision rights is linked to feelings of autonomy, power, and
control.
The paper connects these findings to broader concepts of autonomy and
freedom, suggesting that decision rights have psychological and
motivational importance that goes beyond their impact on tangible
outcomes.
In an organizational context, this intrinsic value explains why employees
often prefer jobs that offer greater autonomy and why managers value
authority and control, even in cases where delegation might be more
efficient.
Key Takeaways:
Decision-making authority is intrinsically valuable to individuals, providing
a sense of autonomy and satisfaction that extends beyond financial
considerations.
In corporate governance and human resource management, understanding
the intrinsic value of decision rights can help design more effective
management structures and job roles that enhance employee motivation
and engagement.
The research highlights the need for organizations to recognize that
autonomy and control are important motivators for employees, even when
these factors do not directly improve financial outcomes.
Conclusion:
Decision rights hold significant intrinsic value for individuals, affecting not only
their job satisfaction but also organizational outcomes. This insight can inform
better corporate governance and human resource strategies, particularly in job
design and the allocation of decision-making authority
EC 4 – Performance Measures
Moers (2006)
Performance Measure Properties and Delegation
Overview
This study examines how the properties of financial and nonfinancial
performance measures affect the delegation of decision-making authority within
, firms. The study focuses on how the contractibility of these performance
measures influences the delegation process.
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