Working Paper: CEPR ID: DP18004
Authors: Nadya Malenko
Abstract: This survey provides an overview of theoretical and empirical research on information flows in corporations. It highlights key frictions preventing effective information flows and discusses how organizational structure and corporate governance can alleviate these frictions, focusing on three broad topics: 1) organizational design, such as the choice between centralized and decentralized decision-making; 2) composition and decision-making process of the board of directors; and 3) communication among shareholders and between shareholders and management in the context of shareholder activism. The goal of the survey is to draw connections between theoretical and empirical work and point out directions for future research.
Keywords: information flows; communication; organizational structure; delegation; board of directors; shareholder activism
JEL Codes: D23; D82; D83; G34; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| misaligned interests between the informed agent and the uninformed principal (D82) | inefficiencies in communication (L96) |
| inefficiencies in communication (L96) | information loss (D83) |
| delegating authority to lower-level managers (M54) | efficiency of information use (D83) |
| agent's interests diverge from those of the principal (D82) | new biases introduced (C46) |
| optimal allocation of authority depends on the relative informational advantage of the agent compared to the principal (D82) | delegation is more likely to be beneficial (H77) |
| structure of the board of directors (G34) | information flows (O36) |
| more management-friendly board (G34) | enhanced communication (L96) |
| more management-friendly board (G34) | biased decision-making (D91) |