Mechanism analysis and countermeasure of performance information manipulation in subsidiaries

There is asymmetric information between the headquarter and its subsidiaries. In order to maximize their utilities, subsidiaries incline to submit fake performance information, headquarter doesn´t participate subsidiaries´ business operation, so it can´t identify these information. In order to control subsidiaries´ behavior of manipulation, this paper sets up a “principal-agent” model, and then we obtain the optimal supervision mechanism and incentives contracts, which let subsidiaries submit truth performance information. Deductive mechanism show that, through improve the validity of supervision, the intensity of punishment, headquarter can reduce the probability of supervision and manipulation. When subsidiaries obtain specific share of profit, it can make them work hard, submit truth performance information and maximize utilities of headquarter.