Predictive analytics and centralization of authority

Eva Labro, Mark Lang and James D. Omartian

Journal of Accounting and Economics, 2023, vol. 75, issue 1

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 (search for similar items in EconPapers)
JEL-codes: D23 L60 M52 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:75:y:2023:i:1:s0165410122000490

DOI: 10.1016/j.jacceco.2022.101526

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