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

See all articles by Eva Labro

Eva Labro

Kenan-Flagler Business School University of North Carolina

Mark H. Lang

University of North Carolina at Chapel Hill

James D. Omartian

University of Michigan - Ross School of Business

Date Written: July 1, 2021

Abstract

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

Labro, Eva and Lang, Mark H. and Omartian, James D., Predictive Analytics and the Centralization of Authority (July 1, 2021). Forthcoming in Journal of Accounting and Economics, Available at SSRN: https://ssrn.com/abstract=3300927 or http://dx.doi.org/10.2139/ssrn.3300927

Eva Labro

Kenan-Flagler Business School University of North Carolina ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
(919) 962-5747 (Phone)

Mark H. Lang

University of North Carolina at Chapel Hill ( email )

Kenan-Flagler Business School
McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-1644 (Phone)
919-962-4727 (Fax)

James D. Omartian (Contact Author)

University of Michigan - Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI 48109-1234
United States

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