| Asymmetric information is inevitable in management for modern companies. Since there are many differences between headquarters and regional branch offices, the branch offices will have more information about their own cost situation than headquarters. For the aim of maximizing their benefit, the branch offices will take advantage of this asymmetric information to raise up their expense budget, to abuse the money or to cheat on their expense, etc.. Therefore asymmetric information is such an obstruction when headquarters want to control the cost of the branch offices.This paper analyses a foreign company—SMS, summaries the successful methods during cost control including effective Comprehensive Budget, good Internal Control System and "Four Eyes" Policy. At the same time this paper points out the problems SMS faced, they are: lacking of commercial manager' s performance controlling system and related promoting system, lacking of methods to reduce the asymmetric degree of the information between headquarters and the branch offices.In order to solve these problems, this paper advises to use internal cost auditing and prosecution system on expense cheating activities. According to the game theory analyzing result, this paper also recommend the way of how to design these systems. To realize the control of the commercial manager, an income system of them has been provided in this paper. To realize the control of the branch office, the associated base method also been used. Further more, the author brings forward others ways like transparent expense, encouragement to the economizer and sparkplug the culture in company for cost saving. The methods we mentioned are very practicable and can help SMS to partially solve the problem in its branch offices cost control.The solutions proposed in this paper for expense control in SMS under asymmetric information can be used for reference for the Chinese company with the same headquarters-branch offices structure. |
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