Organizational Design Choices in Retail Banking

Using a database of branch managers in retail banks, this study finds some empirical support for the two main predictions of Jensen and Meckling's (1992) theory on organizational design choices: a) the allocation of decision rights to branch managers is associated with control systems that measure their performance and reward them based on these performance measures, and b) these decision rights and control systems are associated with the costs of transferring knowledge from branch managers to the top management. A simultaneous equation of these organizational design choices indicates that the causal relation among these choices is unidirectional, with decision rights determining control systems. The implications of this finding are discussed.