Discussion of “Asset Valuation and Performance Measurement in a Dynamic Agency Setting”

Discussion of “Asset Valuation and Performance Measurement in a Dynamic Agency Setting” 260 RICHARD A. LAMBERT optimal performance measurement. One branch focuses on renegotiation or lack of ability to commit to long term contracts. In these papers, information (or “accurate” performance measurement) at intermediate stages of the model is “bad”; it hurts welfare. While the reasons are somewhat different in different papers, they are generally related to the idea that the release of information decreases the ability of the principal and the agent to insure the agent against risk. That is, risks that are ex ante optimal to insure against become ex post optimal to renegotiate. To make sure these risks remain insurable, the two parties agree to garble the information that will be available at intermediate dates or delay its release, or aggregate signals. See Arya et al (1998), Gigler and Hemmer (1998), Indjejikian and Nanda (1998) and Demski and Frimor (1999) for examples. The other branch of the multiperiod literature focuses on motivating long term investments. These papers often make strong assumptions about the information that is available about future cash flows, and they derive strong links between optimal performance measures and economic valuation measures. Optimal performance measures are very forward looking (or based on accrual decisions that are http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Discussion of “Asset Valuation and Performance Measurement in a Dynamic Agency Setting”

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Publisher
Springer Journals
Copyright
Copyright © 1999 by Kluwer Academic Publishers
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1023/A:1009686218333
Publisher site
See Article on Publisher Site

Abstract

260 RICHARD A. LAMBERT optimal performance measurement. One branch focuses on renegotiation or lack of ability to commit to long term contracts. In these papers, information (or “accurate” performance measurement) at intermediate stages of the model is “bad”; it hurts welfare. While the reasons are somewhat different in different papers, they are generally related to the idea that the release of information decreases the ability of the principal and the agent to insure the agent against risk. That is, risks that are ex ante optimal to insure against become ex post optimal to renegotiate. To make sure these risks remain insurable, the two parties agree to garble the information that will be available at intermediate dates or delay its release, or aggregate signals. See Arya et al (1998), Gigler and Hemmer (1998), Indjejikian and Nanda (1998) and Demski and Frimor (1999) for examples. The other branch of the multiperiod literature focuses on motivating long term investments. These papers often make strong assumptions about the information that is available about future cash flows, and they derive strong links between optimal performance measures and economic valuation measures. Optimal performance measures are very forward looking (or based on accrual decisions that are

Journal

Review of Accounting StudiesSpringer Journals

Published: Sep 30, 2004

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