ABSENT fiat, the form of organization that survives in an activity is the one that delivers the product demanded by customers at the lowest price while covering costs.1 Our goal is to explain the survival of organizations characterized by separation of "ownership" and "control"-a problem that has bothered students of corporations from Adam Smith to Berle and Means and Jensen and Meckling.2 In more precise language, we are concerned with the survival of organizations in which important decision agents do not bear a substantial share of the wealth effects of their decisions. We argue that the separation of decision and risk-bearing functions observed in large corporations is common to other organizations such as large professional partnerships, financial mutuals, and nonprofits. We contend that separation of decision and risk-bearing functions survives in these organizations in part because of the benefits of specialization of

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Separation of ownership and control

This paper analyzes the survival of organizations in which decision agents do not bear a major share of the wealth effects of their decisions. This is what the literature on large corporations calls separation of ownership and control. Such separation of decision and risk bearing functions is also common to organizations like large professional partnerships, financial mutuals and nonprofits. We contend that separation of decision and risk bearing functions survives in these organizations in part because of the benefits of specialization of management and risk bearing but also because of an effective common approach to controlling the implied agency problems. In particular, the contract structures of all these organizations separate the ratification and monitoring of decisions from the initiation and implementation of the decisions.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID924170_code9.pdf?abstractid=94034&mirid=1&type=2

Separation of Ownership and Control

Contingency theories of management accounting have become a current vogue but have produced few significant new results. By surveying the development and content of these theories it is argued that they have been based on an inadequate and insufficiently articulated model. An improved model, based on ideas of organizational control and effectiveness, is put forward which suggests appropriate directions for future work that will be both perceptive and cumulative.

The contingency theory of management accounting: Achievement and prognosis

Innovative e-commerce ideas are characterised by commercial products yet unknown to the market, enabled by information technology such as the Internet and technologies on top of it. How to develop such products is hardly known. We propose an interdisciplinary approach, e3-value, to explore an innovative e-commerce idea with the aim of understanding such an idea thoroughly and evaluating it for potential profitability. Our methodology exploits a requirements engineering way of working, but employs concepts and terminology from business science, marketing and axiology. It shows how to model business requirements and improve business---IT alignment, in sophisticated multi-actor value constellations that are common in electronic commerce. In addition to the e3-value approach methodology, we also present the action research-based development of our methodology, by using one of the longitudinal projects we carried out in the field of online news article provisioning.

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Value-based requirements engineering: exploring innovative e-commerce ideas

Several accounting and other signals are generally available for the construction of a managerial performance evaluation measure on which an optimal compensation contract is based. The demand for aggregation in evaluating managerial performance arises because reporting all the basic transactions and other nonfinancial information about performance is costly and impracticable (see Ashton [1982], Casey [1978], and Holmstrom and Milgrom [1987]). We identify necessary and sufficient conditions on the joint density function of the signals under which linear aggregation, a simple and commonly employed way to construct a performance evaluation measure, is optimal. This characterization suggests that the linear form of aggregation is optimal for a large class of situations. Focusing on performance measures that are linear aggregates enables us to determine the relative weights on the individual signals in the optimal linear aggregate, since these weights are invariant for all realizations of the signals. We interpret these weights in terms of statistical characteristics (sensitivity and precision) of the joint distribution of the signals.

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Sensitivity, Precision, and Linear Aggregation of Signals for Performance Evaluation

1. The Accountant's Role in the Organization. 2. An Introduction to Cost Terms and Purposes. 3. Cost-Volume Profit Analysis. 4. Job Costing. 5. Activity-Based Costing and Activity-Based Management. 6. Master Budget and Responsibility Accounting. 7. Flexible Budgets, Variances, and Management Control: I 8. Flexible Budgets, Variances, and Management Control: II. 9. Inventory Costing and Capacity Analysis. 10. Determining How Costs Behave. 11. Decision Making and Relevant Information. 12. Pricing Decisions and Cost Management. 13. Strategy, Balanced Scorecard, and Strategic Profitability Analysis. 14. Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis. 15. Allocation of Support Department Costs, Common Costs and Revenues. 16. Cost Allocation: Joint Products and Byproducts. 17. Process Costing. 18. Spoilage Rework, and Scrap. 19. Quality, Time, and the Theory of Constraints. 20. Inventory Management, Just-in-Time, and Backflush Costing. 21. Capital Budgeting and Cost Analysis. 22. Management Control Systems, Transfer Pricing, and Multinational Considerations. 23. Performance Measurement, Compensation, and Multinational Considerations.

/pdf/cost-accounting-a-managerial-emphasis-4wrngoxrq7.pdf

Cost Accounting: A Managerial Emphasis

There is growing interest in the use of markets within firms. Proponents have noted that markets are a simple and efficient mechanism for allocating resources in economies in which information is dispersed. In contrast to the use of markets in the broader economy, the efficiency of an internal market is determined in large part by the endogenous contractual incentives provided to the participating, privately informed agents. In this paper, we study the optimal design of managerial incentives when resources are allocated by an internal auction market, as well as the efficiency of the resulting resource allocations. We show that the internal auction market can achieve first-best resource allocations and decisions, but only at an excessive cost in compensation payments. We then identify conditions under which the internal auction market and associated optimal incentive contracts achieve the benchmark second-best outcome as determined using a direct revelation mechanism. The advantage of the auction is that it is easier to implement than the direct revelation mechanism. When the internal auction mechanism is unable to achieve second-best, we characterize the factors that determine the magnitude of the shortfall. Overall, our results speak to the robust performance of relatively simple market mechanisms and associated incentive systems in resolving resource allocation problems within firms.

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Resource Allocation Auctions within Firms

A distinctive feature of the paper is its use of both theoretical and empirical approaches to understanding EVA. The authors first analyze a principal-agent model using certaine parametric assumptions. They model EVA and accounting earnings as two distinct, noisy perfomance measures of the same uderlying construct, with both measures providing information to the principal about the agent's action choices. They subsequently derive a theoretical expression for the percentage value-added contributed by using EVA as a measure for evaluating managerial perfomance. A key finding is that this expression can be restated as a function of the observed correlations of each of the metrics with stock price. In the second part of the paper, the authors estimate this value for their sample of firms using time-series data, and then correlate the estimates cross-sectionally with the decision to adopt EVA by these firms. In support of the theoretical results, the authors find a positive association, after controlling for other factors such as size, leverage, and growth oppportunities.

Discussion of EVA versus Earnings: Does It Matter Which Is More Highly Correlated with Stock Returns?

1. The Manager and Management Accounting 2. An Introduction to Cost Terms and Purposes 3. Cost-Volume-Profit Analysis 4. Job Costing 5. Process Costing and Cost Allocation 6. Activity-Based Costing and Activity-Based Management 7. Pricing Decisions, Customer Profitability, and Cost Management 8. Determining How Costs Behave 9. Decision Making and Relevant Information 10. Quality, Inventory Management, and Time 11. Capital Investments 12. Master Budget and Responsibility Accounting 13. Flexible Budgets, Cost Variances, and Management Control 14. Strategy, Balanced Scorecard, and Strategic Profitability Analysis 15. Transfer Pricing 16. Performance Measurement and Compensation

Managerial Accounting: Making Decisions and Motivating Performance

This paper shows that major components of modern manufacturing processes, such as inventory management and cross-training, play a significant control role. In our model, workers possess information that is critical to efficient ongoing operations. An organizational design that motivates workers to optimally apply this information leverages both the production schedule and worker–management communication. Management's use of these controls results in work-in-process (WIP) inventory that appears excessive from a pure job-scheduling perspective, but is optimal when control issues are considered. Empirical work testing pure job-scheduling theories of modern manufacturing practices has yielded mixed results. We provide control-related interpretations for these empirical findings, and also provide novel predictions regarding the link between inventory levels and the nature of operational information asymmetries. Overall, our model highlights the importance of recognizing both control and scheduling issues when analyzing production processes.

https://papers.ssrn.com/sol3/Delivery.cfm/joar_341.pdf?abstractid=1404873&mirid=5

Madhav V. Rajan

Papers

Cost Accounting: A Managerial Emphasis

Resource Allocation Auctions within Firms

Discussion of EVA versus Earnings: Does It Matter Which Is More Highly Correlated with Stock Returns?

Managerial Accounting: Making Decisions and Motivating Performance

The Incentive Value of Inventory and Cross‐training in Modern Manufacturing