In decentralized organizations, managers often negotiate with each other over inter-divisional trades and transfer prices. These activities require disclosures by managers over such variables as the level of divisional income, backorder levels, market trends and prices, returns on investment and so forth. By the nature of the decentralized firm, managers of these divisions may have incentives to under- or overstate these disclosures. In response, the recipients of these disclosures may institute control systems that formally or informally investigate these claims, and so deter biased reporting. In this paper we consider how these control systems will be used and whether they make the receiver better off not investigating. We develop intuition for when information is valuable in this setting. (C) 1998 Elsevier Science B.V. All rights reserved.
