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Complementarities among authority, accountability, and monitoring: Evidence from Japanese business groups

In: Organizational Innovation and Firm Performance

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  • Hideshi Itoh
  • Tatsuya Kikutani
  • Osamu Hayashida

Abstract

This paper offers an empirical test of complementarities among delegated authority, accountability, and monitoring, using unique survey data collected from group-affiliated companies in Japan. The survey provides information about how various decisions are made within business groups, each of which consists of a large core parent firm and its network of affiliated firms such as subsidiaries and related companies. We find some evidence that delegated authority and accountability are complementary, implying that increasing assigned accountability raises the marginal return from increasing delegated authority. We also obtain a stronger result that performance is likely to be better under the combination of low authority and low accountability or that of high authority and high accountability than under the "mix and match" combinations where one is low and the other high. We then study the effects of monitoring intensity on the authority-accountability pair and find that performance of the firm with the combination of high authority and high accountability is increasing in monitoring intensity, while the combination of low authority and low accountability is not. This result is consistent with the theoretical hypothesis that increasing monitoring intensity raises the marginal return from increasing delegated authority and accountability. J. Japanese Int. Economies 22 (2) (2008) 207-228.

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This chapter was published in:

  • George Baker & Takeo Hoshi & Hideshi Itoh & Sadao Nagaoka, 2008. "Organizational Innovation and Firm Performance," NBER Books, National Bureau of Economic Research, Inc, number bake08-1, May.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 12174.

    Handle: RePEc:nbr:nberch:12174

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