This first chapter develops an economic model of the firm linking current financial and non-financial measures to future earnings for retail banks. The data support the associations among current financial and non-financial measures predicted by model, suggesting that the economic model is applicable to the firms in my sample. I use the model to specify the regression of future earnings on current financial and non-financial. I find that non-financial measures contribute about 20 percent of the total explanatory power in predicting earnings one year ahead, suggesting that non-financial measures have substantial forward-looking information over and above current financial measures. I then interpret the coefficients on individual financial and non-financial measures in the context of the economic model. The second chapter finds some empirical support for the two main predictions of Jensen and Meckling's (1992) theory on organizational design choices: (a) the allocation of decision rights to branch managers is associated with control systems that measure their performance and reward them based on these performance measures, and (b) the allocation of decision rights to branch managers and the attendant control systems are associated with the costs of transferring knowledge from branch managers to the top management. However, a simultaneous equation of these organizational design choices indicates that these choices, while correlated, are not made simultaneously.
