Investment Decisions and Managerial Performance Evaluation

Investment Decisions and Managerial Performance Evaluation 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Investment Decisions and Managerial Performance Evaluation

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 1997 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:1018376808228
Publisher site
See Article on Publisher Site

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