Organizational Structure and the Limits of Knowledge Sharing: Incentive Conflict and Agency in Car Leasing

33 Pages Posted: 19 Mar 2010 Last revised: 3 Oct 2011

See all articles by Lamar Pierce

Lamar Pierce

Washington University, Saint Louis - John M. Olin School of Business

Date Written: October 1, 2011

Abstract

This paper argues that conflicting incentives among managers may impede potential knowledge sharing benefits from vertical integration. I study knowledge-based agency costs from vertical integration in car leasing, where manufacturer-owned captive lessors compete with independent lessors. Both organizational forms must acquire and integrate diffuse knowledge in order to accurately predict vehicle depreciation --- a condition critical for profitability. Using a dataset of 180,000 leases, I compare contracts of independent and captive lessors across car models, market conditions, and product life cycles. I find managers in vertically integrated firms have conflicting incentives on whether to accurately and completely share proprietary knowledge, and show that these incentives appear to generate agency costs inconsistent with corporate profitability as managers selectively use and share knowledge for personal gain. The findings suggest that most knowledge benefits of vertical integration will be nullified when managerial interests are incompatible with the profit concerns of the firm.

Keywords: knowledge-based view, signaling, leasing, agency theory, automotive industry

Suggested Citation

Pierce, Lamar, Organizational Structure and the Limits of Knowledge Sharing: Incentive Conflict and Agency in Car Leasing (October 1, 2011). Available at SSRN: https://ssrn.com/abstract=1572062 or http://dx.doi.org/10.2139/ssrn.1572062

Lamar Pierce (Contact Author)

Washington University, Saint Louis - John M. Olin School of Business ( email )

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