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Specific Knowledge and Divisional Performance Measurement

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  • Michael C. Jensen
  • William H. Meckling

Abstract

This classic by the formulators of agency cost theory discusses five common divisional performance measurement methods-cost centers, revenue centers, profit centers, investment centers, and expense centers-while providing a theory that attempts to explain when each of these methods is likely to be the most efficient. The central insight of the theory is that each method offers a different way of aligning decision-making authority with valuable "specific knowledge" inside the organization. Copyright Copyright (c) 2009 Morgan Stanley.

Suggested Citation

  • Michael C. Jensen & William H. Meckling, 2009. "Specific Knowledge and Divisional Performance Measurement," Journal of Applied Corporate Finance, Morgan Stanley, vol. 21(2), pages 49-57.
  • Handle: RePEc:bla:jacrfn:v:21:y:2009:i:2:p:49-57
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1745-6622.2009.00225.x
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    Cited by:

    1. Der-Fang Hung, 2015. "Sustained Competitive Advantage and Organizational Inertia: The Cost Perspective of Knowledge Management," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 6(4), pages 769-789, December.
    2. Konstantinos J. Liapis, 2010. "The Residual Value Models: A Framework for Business Administration," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 83-102.

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