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Introduction

T. V. S. Ramamohan Rao ()
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T. V. S. Ramamohan Rao: Indian Institute of Technology Kanpur

Chapter Chapter 1 in Managerial Discretion in Imperfect Markets, 2023, pp 1-20 from Springer

Abstract: Abstract The concept of the firm, as it evolved over the years, encompasses the technology of production, the economies of scale and scope that enabled a multi-product structure, the organizational arrangements, including implicit contracts and governance relation, necessitated by information asymmetry, transaction and agency costs that it entails, and the financial arrangements. The information requirement and the costs of arriving at the optimum arrangements (defined by the maximization of the market value of the firm, profits generated, dividend paid to shareholders, etc.) necessitated delegating several decisions to the managers at the divisional level. The autonomy they have in decision-making, despite the constraints imposed by higher level managers, leaves some discretion to the management. The uncertainties of market environment, even if the management utilizes non-price strategies to reduce its impact, also results in managerial discretion. It can be surmised that the resulting reduction in the market value of the firm (or any other objective) can be eliminated if managerial decisions are monitored and controlled. The primary objective of this study is to identify the sources, measuring the extent of managerial discretion, and outlining strategies that can reduce it. Though creating synergies between different divisions and different groups of individuals is important it is not possible to prove or presume that managerial discretion in imperfect markets can be eliminated altogether. It is expected that machine learning algorithms can be developed on a behavioral basis to reduce the burden on the management except in cases of unexpected and uncertain events.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-981-99-1537-8_1

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DOI: 10.1007/978-981-99-1537-8_1

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