This paper considers incentive provisions for a manager who makes investment decisions. The manager's performance measure can be based on current accounting information: cash flow, depreciation, book value, and current investment. We argue that Residual Income is the unique (linear) performance measure that achieves goal congruence, i.e., the manager accepts all positive NPV projects, and only those. If the manager has the same discount rate as the owner, the depreciation rules remain indeterminate. However, if the manager's discount rate assumes potentially a whole range of values, then a particular depreciation policy combined with Residual Income is the unique way to achieve goal congruence.
Review of Accounting Studies – Springer Journals
Published: Jan 13, 2005
It’s your single place to instantly
discover and read the research
that matters to you.
Enjoy affordable access to
over 12 million articles from more than
10,000 peer-reviewed journals.
All for just $49/month
Read as many articles as you need. Full articles with original layout, charts and figures. Read online, from anywhere.
Keep up with your field with Personalized Recommendations and Follow Journals to get automatic updates.
It’s easy to organize your research with our built-in tools.
Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.
All the latest content is available, no embargo periods.
“Hi guys, I cannot tell you how much I love this resource. Incredible. I really believe you've hit the nail on the head with this site in regards to solving the research-purchase issue.”Daniel C.
“Whoa! It’s like Spotify but for academic articles.”@Phil_Robichaud
“I must say, @deepdyve is a fabulous solution to the independent researcher's problem of #access to #information.”@deepthiw
“My last article couldn't be possible without the platform @deepdyve that makes journal papers cheaper.”@JoseServera