We consider the optimal allocation of decision rights over noncontractible specific investments. Risk-averse business unit managers each engage in general (stand-alone) operations and invest in joint projects that benefit their own and other divisions. Which of the managers should have the authority to choose these investments? With scalable investments, we show that decision rights should be bundled in the hands of the manager facing the more volatile environment. With discrete (lumpy) investments, on the other hand, decision rights should be split between the managers, provided they face comparable levels of uncertainty in their general operations. Splitting decision rights better leverages the inherent investment complementarity, counter to conventional wisdom. Our model generates empirical predictions for the equilibrium association of organizational structure and managers' incentive contracts: bundling of decision rights results in pay-performance sensitivity (PPS) divergence across divisions; splitting them results in PPS convergence.

We study how the potential for discretionary disclosure affects the way a firm designs its reporting system. In our model, the firm's primary but nonexclusive concern is to induce beliefs that exceed a threshold. Such thresholds arise in numerous contexts, including investing decisions, liquidation/continuation choices, covenants, audits, impairments, listing requirements, index inclusion, credit ratings, analyst recommendations, and stress tests. The optimal reporting system is characterized by informative good reports when the threshold is high and, potentially, uninformative reports when the threshold is low. Under an optimal impairment-type reporting system, the likelihood of reported impairments and the information content of non-impairment reports both increase in the probability of the firm observing private information. We provide a novel motivation for the quiet period around an IPO and empirical predictions relating the probability of discretionary disclosure to the properties of financial reports. In extensions, we consider disclosure mandates, report manipulation, endogenous thresholds, and alternative payoff functions.