Week 1 Artikelen samenvatting
Jensen & Meckling (1992): Specific and general knowledge, and Organizational structure.
Cost of transferring specific knowledge encourages the decentralization of decision rights and how this
decentralization generates the rights assignment (= determining who should exercise a decision right)
and control problems (= how to ensure that self-interested decision agents exercise their right in a way
that contributes to the organization objective). Ignoring agency problems, assigning decision rights to
individuals who have the decision-relevant knowledge and abilities increases efficiency. Self-interest on
the part of individual decision makers, however, requires a control system to motivate individuals to use
their decision rights optimally. A capitalist economy solves the rights assignment and control problems
by granting alienable decision rights to individuals (able to be transferred to new ownership).
Unlike markets, the decision rights assigned to individuals in organizations seldom include the right to
alienate those rights. This inalienability of rights requires organizations to solve the rights assignment
and control problems by alternative means. They solve these problems by establishing internal rules of
the game that: 1) provide a system for partitioning decision rights among agents in the organization, and
2) create a control system that provides a performance measurement and evaluation system and a
reward and punishment system. The inherent inefficiency of organizational control systems as compared
to alienability means firms cannot survive unless they provide other offsetting advantage such as
economies of scale, scope or risk bearing.
If knowledge valuable to a particular decision is to be used in making that decision, there must be a
system for assigning decision rights to individuals who have the knowledge and abilities or who can
acquire or produce them at low cost.
Jensen & Meckling (1976): Theory of the firm: managerial behavior, agency costs and ownership
structure.
This paper integrates elements from the theory of agency, the theory of property rights and the theory
of finance to develop a theory of the ownership structure of the firm. Agency costs are as real as any
other costs. The level of agency costs depends, among other things, on statutory and common law and
human ingenuity in devising contracts. Both the law and the sophistication of contracts relevant to the
modern corporation are the products of a historical process in which there were strong incentives for
individuals to minimize agency costs. Moreover, there were alternative organizational forms available,
and opportunities to invent new ones. Whatever its shortcomings, the corporation has thus far survived
the market test against potential alternatives.
Abernethy, Bouwens, & van Lent (2004): Determinants of control system design in divisionalized
firms.
Decentralization and use of performance measures as determinants of choices in the control system.
These two are important to control system design: (1) information asymmetries between corporate and
divisional managers and (2) division interdependencies. We treat decentralization and performance
measurement choices as endogenous variables and examine the interrelation among these choices
using a simultaneous equation model. Their results indicate that decentralization is positively related to
level of information asymmetries and negatively to intrafirm interdependencies, while use of
performance measures is affected by the level of interdependencies among divisions within the firm, but
not by information asymmetries. Evidence (some) that decentralization choice and use of performance
measures are complementary.
Sandino (2007): Introducing the First Management Control Systems: Evidence from the Retail
Sector.
Management control systems that firms introduce when they first invest in controls, and identify four
categories of initial MCS, which are defined in terms of the purposes these fulfill: (1) collect information
for planning, setting standards and establishing the basic operations of the firm, (2) cost focus on
enhancing operating efficiencies and minimizing costs, (3) revenue to foster growth and be responsive
to customers and (4) risk focus on reducing risks and protecting asset integrity. The choice among these
,categories reflects the firms’ strategy, and firms that choose initial MCS better suited to their strategy,
perform better than others.
Grabner & Moers (2013a): Management control as a system or a package? Conceptual and
empirical issues.
Despite the trend in investigating combinations of MC practices that form packages or systems, there is
ambiguity about what is meant by a ‘control package’ or ‘control system’. The predominant criticism
regarding the systems approach is that it has not yet succeeded in advancing our knowledge on the
configuration of multiple control practices. The systems approach to contingency theory maintains that
the organizational design involves two basic choices: (1) selecting MC practices that match the set of
contingencies facing the organization, and (2) assuring that the MC practices are internally consistent.
Week 2 Artikelen samenvatting / antwoorden op vragen
Bouwens & Kroos (2019): The effect of delegation of decision rights and control: The case of
lending decisions for small firms.
The effect of the allocation of decision rights on loan outcomes using proprietary data from a bank. Given
that loan officers accumulate soft, non-verifiable information about borrowers through repeated
interactions over time, our bank grants decision rights on some loans to loan officers. For larger and
risky loans, the bank centralizes decision rights to assure that those loans are diversified across
industries. When loans require approval from higher-level officers, loan officers must communicate their
accumulated information with higher-level officers. Given that loan officers are incentivized to make
loans irrespective of who has the discretion to grant the loan, internal disclosure of soft information
appears to come at a cost. Relative to loans where loan officers have discretion, loans that require
approval from higher hierarchical levels feature: (1) greater discounts on standard loan rates, and (2) a
greater likelihood of a loan quality downgrade in the period following approval. The evidence suggests
that the incentive for loan officers to make loans, in combination with the necessity for higher ranked-
offices to rely on soft information in their loan decisions, creates conditions in which information reported
by loan officers may become optimistically biased.
1. What is the decision in this study & how is the delegation of decision rights organized in this setting?
Bank verstrekt leningen aan bedrijven. De loonofficer fungeert als accountmanager: onderhoudt relaties
bij verschillende type bedrijven; stelt financieringsbehoefte op en regelt hele aanvraagproces. Soms
mogen loonofficers wel beslissen, soms niet. Kenmerken die dat bepalen: (1) leningen met kleiner risico
en (2) leningen met kleiner totaal omvang, kleiner krediet: de exposure naar een specifieke klant toe
(totale uitstaande schuld)
2. What kind of customers are served in this bank and why is this relevant?
MKB: wat kleinere bedrijven. Waarom relevant: geen jaarrekening die gecontroleerd wordt door
accountant. Maakt het lastig om als bank beslissingen te nemen. Andere bron van informatie: langere
relaties met bedrijven; eigenaar; businessplannen. Waardevol = soft information (geen business info en
wordt ook meegenomen).
3. What is the key problem that emerges when decision rights are organized as they are while serving
the kind of customers that they do?
Deel soms gebaseerd op harde informatie, soms op softere niet-verifieerbare informatie. Probleem waar
we tegen aan lopen is: (1) incentives en (2) opportunity: stimuleren om te verkopen. Worden beloond
op basis van hoeveel leningen ze verkopen. Daarin geneigd om te verkopen zonder toestemming hoger
niveau, vooral met hoge leningen: je probeert het te positief neer te zetten om te zorgen dat de kans dat
de lening wordt goedgekeurd, hoger is. Is vorm van Moral Hazard.
4. What are the two components of the riskiness of a loan? In addition, how do loan rates move
(increase or decrease) when credit risk and total outstanding debt increase? Does this make sense?
, Kredietrisico: (1) onderpand: mate van zekerheden die je stelt bij belegging, bepaalt o.a. risico van
lening. Hogere uitstaande bedragen: lager uitstaande rate (tarief). Verklaring = volumekorting. Hogere
bedragen, tarief gaat omlaag: ze willen klanten die hogere bedragen lenen.
5. What is the main takeaway from Table 5? Is this consistent with the key problem that you discussed
at point 3.
Discounts op standaard tarieven en afwijking van standaard loontarief. Loon rate. LQC: wat is de kans
op een downgrade op een lening nadat die is goedgekeurd. Hoe functioneert die lening. Leningen die
door een hoger niveau worden goedgekeurd, krijgen vaker een korting op de standaard loon rate.
Consistent met prikkels, verkopen, toestemming; lening positief neerzetten voor goedkeuring. Ook nog
eens korting hierop.
Hogere kans op downgrade: te positief neerzetten m.a.w. je krijgt vaker discount met goedkeuring maar
over algemeen presteren die leningen minder goed.
6. What is the main takeaway from Table 6? Is this consistent with the key problem that you discussed
at point 3.
MKB te positief neerzetten omdat ze niet-verifieerbare informatie hebben. Sommigen hebben wel
gecontroleerde jaarrekeningen. Dat verschil is hier. De relatie met korting op standaard loon rate geldt
alleen voor bedrijven die geen gecontroleerde jaarrekening hebben. Alleen voor die bedrijven ben je in
staat het te goed neer te zetten. Wel gecontroleerde jaarrekening, daar slagen ze er niet in om die
discount te krijgen.
➔ Leenbeslissing binnen banken, loon officer heeft lange relatie met klanten, heeft prikkels om
leningen te verkopen. Veel MKB geen jaarrekening maar afhankelijk van softe niet-
verifieerbare informatie, die kunnen ze manipuleren en te positief communiceren. Krijgen
hierdoor korting maar uiteindelijk presteren ze minder.
➔ Gaat over delegatie van bevoegdheden en Moral Hazard probleem dat daaruit bestaat
Campbell (2012): Employee selection as a control system.
When it is difficult to align incentives by contracting on output, aligning preferences via employee
selection may provide a useful alternative. Employees selected through such channels (likely to sort on
the alignment of their preferences with organizational objectives) are more likely to use decision-making
authority in the granting and structuring of consumer loans than those who are not. Conditional on using
decision-making authority, their decisions are also less risky ex post. These findings demonstrate
employee selection as an important, but understudied, element of organizational control systems.
1. Explain the transition from centralized towards decentralized decision making at this credit union?
Describe the centralized and decentralized decision making system.
Coöperatie vs. Beursgenoteerde bank. Hoe belangrijk is klanttevredenheid voor deze bank?
(1) Beursgenoteerd: als de klant niet tevreden is, kopen zij minder en slecht voor reputatie i.v.m. mond-
tot-mond. End game is aandelenkoers. Klanttevredenheid is wel belangrijk maar de business case is
dat de revenue hoger is dan de kosten. Klanttevredenheid is een middel, geen doel. (2) Coöperatie =
Credit Union: klanten zijn eigenaren. Grotere klanttevredenheid omdat dit het einddoel is.
2. Describe the new strategy and did it fit with the new decentralized decision making system?
Het nieuwe system heeft als doel ‘relaties opbouwen gebaseerd op vertrouwen’ d.m.v.
belangenbehartiging en dienstverlening op lange termijn voor zowel het lid als de organisatie. Om dit
mogelijk te maken, was het gezag sterk gedecentraliseerd waarbij het prioriteit geeft aan de klant in het
besluitvormingsproces, maar ook medewerkers vraagt om bij het nemen van beslissingen rekening te
houden met de organisatie. Nu mogen ze van de procedures en regels afwijken (om dit te realiseren..).
3. Do you believe that this new strategy makes sense given that the organization is a credit union?
