Predictive Analytics and the Centralization of Authority
Forthcoming in Journal of Accounting and Economics
66 Pages Posted: 1 Jan 2019 Last revised: 29 Jul 2022
Date Written: July 1, 2021
We examine the relation between plant-level predictive analytics use and centralization of authority for more than 25,000 manufacturing plants using proprietary US Census data. We focus on headquarters authority over plants through delegation of decision-making and design of performance-based incentives. We find that increased predictive analytics use is associated with reduced delegation of decision-rights to local managers, increased centralization of control over data gathering and reduced plant managerial payrolls. In terms of incentives, predictive analytics use is associated with more accurate targets and tighter linkages between rewards to workers (performance-based bonuses, promotions and firings) and measured performance. Overall, our findings suggest that predictive analytics use is associated with increased centralization of authority in headquarters.
Keywords: Authority in Organizations, Managerial Incentives, Delegation
JEL Classification: D23, L60, M52
Suggested Citation: Suggested Citation