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Delegation and Performance

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  • Olena Senyuta

Abstract

This paper empirically investigates how the level of authority delegation is related to the performance of an organization. Decentralized, horizontal organizational structure takes advantage of more effcient decision making, mainly due to more efficient use of "soft" information. The cost of such decentralization is the loss of control and the need to properly incentivise agents who are legitimately given the authority to make decisions. This is the trade-off organization faces when deciding on the level of authority delegation. The effect of authority delegation is studied using empirical data from the banking sector. Different specifications were used to estimate the effect of authority delegation on performance characteristics. Estimates demonstrate that more authority delegated has a positive effect on quantitative measures of bank performance; however, it decreases the quality of decisions taken. Results demonstrate that there is a trade-off between the quantitative and qualitative performance characteristics. While the local bank branch is able to increase loan generation when more authority is delegated to it, there is also some evidence of loan quality deterioration.

Suggested Citation

  • Olena Senyuta, 2013. "Delegation and Performance," CERGE-EI Working Papers wp497, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    • Handle: RePEc:cer:papers:wp497
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    More about this item

    Keywords

    banking; organizational structure; authority delegation; soft information; small business lending;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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