Organizational Slack in Decentralized Firms: The Role of Business Unit Controllers

Posted: 20 Apr 2006

See all articles by Raffi Indjejikian

Raffi Indjejikian

University of Michigan at Ann Arbor - Accounting

Michal Matejka

Arizona State University

Abstract

We study the determinants of organizational slack in large decentralized firms and focus in particular on how management accounting systems (represented by business unit controllers) affect slack. We rely on an adverse selection model to derive several predictions and to motivate our tests. Consistent with this framework, we find that organizational slack (measured by achievability of business unit managers' performance targets) is higher in settings where business unit controllers focus relatively more on providing decision-making information to business unit managers than on providing information for corporate control. We also find that organizational slack is persistent over time and positively associated with business unit growth, our proxy for the extent of information asymmetry between corporate headquarters and local business unit management.

Keywords: organizational slack, information asymmetry, business unit controller

JEL Classification: D23, D82, M21, M40, M46

Suggested Citation

Indjejikian, Raffi J. and Matejka, Michal, Organizational Slack in Decentralized Firms: The Role of Business Unit Controllers. Accounting Review, Vol. 81, No. 3, July 2006. Available at SSRN: https://ssrn.com/abstract=896284

Raffi J. Indjejikian (Contact Author)

University of Michigan at Ann Arbor - Accounting ( email )

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

Michal Matejka

Arizona State University ( email )

Tempe, AZ 85287-3706
United States
480-965-7984 (Phone)

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