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Authority and Accountability in Hierarchies

Author

Listed:
  • Hofmann, Christian
  • Indjejikian, Raffi J.
Abstract
We examine the assignment of authority to managers in corporate hierarchies and explore the link between authority and accountability that underlies responsibility accounting. We describe major activities of managers as “providing direction and support,†“monitoring performance,†and “hiring and contracting.†These activities enhance subordinates’ productivity, improve the quality of measures used to evaluate subordinate performance, and stipulate subordinates’ compensation contracts, respectively. In a stylized setting of a hierarchy, we illustrate how these three activities differ in the sense that a unique set of determinants dictate the optimal assignment of managerial authority. Our results suggest that “delegation of authority†is a far richer construct than is often portrayed in prior literature. We also consider how performance measure characteristics affect and are affected by assignment of managerial authority in hierarchies. For instance, we find that whether performance measures are aggregate or disaggregate affects the optimal assignment of authority along functional or product lines. We conclude with some suggestions for future research that seeks a closer examination of factors that drive assignment of authority in corporate hierarchies.

Suggested Citation

  • Hofmann, Christian & Indjejikian, Raffi J., 2018. "Authority and Accountability in Hierarchies," Foundations and Trends(R) in Accounting, now publishers, vol. 12(4), pages 298–403-2, December.
    • Handle: RePEc:now:fntacc:1400000052
    DOI: 10.1561/1400000052
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    References listed on IDEAS

    as
    1. Ziv, A, 2000. "Information technology and optimal firm structure," Journal of Accounting Research, Wiley Blackwell, vol. 38(2), pages 297-328.
    2. Julie Wulf, 2007. "Authority, Risk, And Performance Incentives: Evidence From Division Manager Positions Inside Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 55(1), pages 169-196, March.
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    Cited by:

    1. Eva Labro & Mark Lang & Jim Omartian, 2019. "Predictive Analytics and Organizational Architecture: Plant-Level Evidence from Census Data," Working Papers 19-02, Center for Economic Studies, U.S. Census Bureau.
    2. van Pelt, Victor, 2019. "A dynamic view of management accounting systems," Other publications TiSEM 782413b7-2830-4e6d-bc4c-3, Tilburg University, School of Economics and Management.

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    More about this item

    Keywords

    corporate hierarchy; management control; performance measurement; compensation; authority;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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