Template-Type: ReDIF-Paper 1.0 Author-Name: Salvatore Piccolo Author-X-Name-First: Salvatore Author-X-Name-Last: Piccolo Author-Email: salvatore.piccolo@unicatt.it Author-Workplace-Name: Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore Author-Name: Emanuele Tarantino Author-X-Name-First: Emanuele Author-X-Name-Last: Tarantino Author-Name: Giovanni Ursino Author-X-Name-First: Giovanni Author-X-Name-Last: Ursino Author-Email: giovanni.ursino@unicatt.it Author-Workplace-Name: Università Cattolica del Sacro Cuore Author-Workplace-Name: Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore Title: The Value of Transparency in Multidivisional Firms Abstract: We study internal incentives, transparency and rm performance in multidivisional organizations. Two independent divisions of the same firm design internal incentives, and decide whether to publicly disclose their performances. In each division a risk-neutral principal deals with a risk-averse (exclusive) agent under moral hazard. Each agent exerts an unverifiable effort that creates a spillover on the effort cost of the other agent. We first study the determinants of the optimal principal-agent contract with and without performance transparency. Then, we show how effort spillovers affect the equilibrium communication behavior of each division. Both principals commit to disclose the performance of their agents in equilibrium when e orts are complements, while no communication is the only equilibrium outcome when efforts are substitutes. Length: 25 Creation-Date: 2015-06 File-URL: http://dipartimenti.unicatt.it/economia-finanza-def026.pdf File-Format: Application/pdf File-Function: First version, 2015 Number: def026 Classification-JEL: D43, D82, L14. Keywords: Multidivisional Firms, Transparency, Moral Hazard Handle: RePEc:ctc:serie1:def026