To investigate how organizational form impacts managers’ incentives to develop investment opportunities, we have
considered a capital budgeting setting in which a divisional manager can exert personally costly effort to improve the
expected quality of an investment project. Our analysis compares the incentive properties and performance of centralized
and delegated investment decision-making. The key difference between the two forms of organizational structure is that
the firm installs a central monitoring system to collect information about divisional investment opportunities under
centralization, but not under delegation.