Allocation of Decision-making Authority

This paper addresses the question of what determines where in a firm’s hierarchy investment decisions are made. We present a simple model of a CEO and a division manager to analyze when the CEO will choose to allocate decision-making authority over an investment decision to a division manager. Both the CEO and the division manager have private information regarding the profit maximizing investment level. Because the division manager is assumed to have a preference for “empire”, neither manager will communicate her information fully to the other. We show that the probability of delegation increases with the importance of the division manager’s information and decreases with the importance of the CEO’s information. A somewhat counterintuitive result is that, in some circumstances, increases in agency problems result in increased willingness of the CEO to delegate the decision. We also characterize situations in which the CEO prefers to commit to an allocation of authority ex ante, instead of deciding based on her private information. Finally, even though the division manager is biased toward larger investments, we show that under certain conditions, the average investment will be smaller when the decision is delegated. These results help explain some findings in the empirical literature. A number of other empirical implications are developed.We thank Sudipto Dasgupta, Wouter Dessein, Jeff Ely, Mike Fishman, Ehud Kalai, John Matsusaka, Canice Prendergast, Chester Spatt, Lars Stole, Jan Zabojnik, two anonymous referees, participants at the 2002 Utah Winter Finance Conference, the 2002 European Finance Association Annual Meetings, the Harvard/MIT Organizational Economics Workshop, the 2002 University of Illinois Bear Markets Conference, and workshops at the University of Chicago and USC for helpful comments. Financial support from the Center for Research in Security Prices at the University of Chicago Graduate School of Business is gratefully acknowledged.     

The Impact of Product-Country Image and Marketing Efforts on Retailer-Perceived Brand Equity: An Empirical Analysis

Although both product-country images (PCI) and firm assets such as brand equity have been extensively studied in separate contexts, we know very little about the combined performance effects of these two important constructs in international research. Extant research has investigated brand equity primarily from a consumer perspective, but rarely from the point of view of a retailer. Retailers represent the ultimate participants in the value chain selling the product to consumers. They have the ability to significantly influence consumers’ evaluations and purchase decisions. Based upon existing literature documenting the contributions of PCI and marketing activities on brand equity, this study extends these findings by investigating their effects on retailer-perceived brand equity (RPBE) and ultimate brand profitability performance. Results indicate that both marketing activities and PCI affect retailer-perceived brand equity with PCI also strongly and positively influencing brand profitability performance.     

Financial Constraints on German Firms after the Crisis: Evidence from Threshold Panel Estimation

This article studies the existence and magnitude of financial investment constraints in Germany between 2006 and 2012 with a special emphasis on small and medium‐sized firms. The core contention is that the sensitivity of the investment rate to the cash flow rate is a function of a firm's financial position contributing to its access to external finance. The application of a nonlinear panel threshold model reveals that the marginal effect of the cash flow rate on the investment rate is almost twice as strong for ‘high debt’ firms compared to ‘low debt’ firms. This result holds for six out of seven balance sheet threshold variables. For a single specification, the results reveal a non‐monotonic relationship between the cash flow rate and investment rate. Firm size, however, does not explain differences in the cash‐flow‐investment nexus.     

What type of cooperation with suppliers and customers leads to superior performance?

This research evaluates cooperation with key suppliers and customers, correlating cooperation to financial performance. Four cooperative behaviors represent cooperation as a multidimensional concept and the research explores the effect of each of these different dimensions of cooperation on performance. Results show that not all cooperative behaviors have similar and positive impacts on performance. Flexibility has no significant effect while shared problem solving has a negative effect. The other two cooperative behaviors, information exchange and restraint in the use of power, have positive impacts on performance. Results also indicate that cooperation with customers affects mostly firm growth while cooperation with suppliers affects firm profitability. Based on a survey of 124 packaging manufacturers, the analysis uses CFA (Confirmatory Factor Analysis) to validate the measurement of constructs and multiple regressions to analyze the relationships between the cooperative behaviors and financial performance.     

The strategic role of the sales force: perceptions of senior sales executives

Current models of sales force strategy imply formidable information processing demands, which leads us to take a cognitive approach to studying the issue of sales force strategy. We focus on how top-level executives use mental models of sales force performance to simplify the issue of sales force strategy. We interviewed 74 senior executives responsible for their firms’ selling function using the repertory grid approach, as this methodology has been shown to be particularly effective at uncovering the collective cognitive maps on which executives’ decisions and behaviors are based. Executives identified a broad set of 37 strategic concepts that they felt distinguish the sales force efforts of directly competing companies. A second set of sales executives classified the 37 concepts into capabilities, resources, and organizational context concepts. Based on the classification results and feedback from both sets of executives, we developed research propositions for examining sales force strategy and provide directions for future research.