Allocation of Decision Rights between the Parent Company and Its Subsidiaries

Journal of Accounting, Auditing & Finance, Forthcoming

Singapore Management University School of Accountancy Research Paper No. 2016-52

42 Pages Posted: 4 May 2016  

Yuanyuan Liu

Peking University - Department of Accounting

Ting Luo

Tsinghua University

Heng Yue

Singapore Management University - School of Accountancy

Date Written: May 3, 2016

Abstract

This paper examines the determinants of allocation of decision rights between the parent company and its subsidiaries, and the economic consequence of suboptimal power structure. Based on China’s unique double-disclosure for the parent company and the whole group, we construct a decentralization index to measure how decision rights are allocated within the group companies. We find a more decentralized (centralized) power structure for the groups with more uncertain (certain) external environment and with poorer (better) internal information quality. We also show that the groups with suboptimal power structure have weaker future performance.

Keywords: Decentralization, Power Structure, External Environmental Uncertainty, Internal Information Quality, Performance

Suggested Citation

Liu, Yuanyuan and Luo, Ting and Yue, Heng, Allocation of Decision Rights between the Parent Company and Its Subsidiaries (May 3, 2016). Journal of Accounting, Auditing & Finance, Forthcoming; Singapore Management University School of Accountancy Research Paper No. 2016-52. Available at SSRN: https://ssrn.com/abstract=2774239

Yuanyuan Liu (Contact Author)

Peking University - Department of Accounting ( email )

Beijing, 100871
China

Ting Luo

Tsinghua University ( email )

Weilun #201,School of Economics and Management
Beijing, 100084
China

Heng Yue

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

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