Both Company A and Company B are large public corporations with subsidiaries thr

Question

Both Company A and Company B are large public corporations with subsidiaries throughout the world.   Company A uses a centralized approach and makes most of the decisions for its subsidiaries.  Company B uses a decentralized approach and its subsidiaries make many of their own decisions.

a.  Would the agency problem be more pronounced for Company A or for Company B?  Explain.
b.  Would agency costs likely be higher for Berkley or Oakley?  Why?
c.  Discuss a major advantage and a major disadvantage to a centralized approach such as Company A uses.   
d.  Discuss a major advantage and a major disadvantage to a decentralized approach such as Company B uses.
e.  Which approach is better, a centralized or decentralized approach?  Explain.

Explanation / Answer

a) company B's problem will be more pronounced as there will be wider spectrum of solutions for the problems as more groups will deal with it in comaprison to the A

b)agency cost for B will be higher because more power will be involved

c)Major disadvantage for is that

less ideas willl be there for problem solving in comparison to decentralized approach as only one group will be involved

advantage

less capital will be involved and conflicts of ideas will be less and smooth execution will be there.

d)

Major advantage for is that

more ideas willl be there for problem solving in comparison to centralized approach as more than one groups will be involved and proper solution will be there.

advantage

more capital will be involved and conflicts of ideas will be there which will affect in execution

e)decentralized approach will be better because more groups are involved and this will help in proper solution and wider spectrum of answers.

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.