Project selection, income smoothing, and Bayesian learning
Capital rationing is an empirically well-documented phenomenon. This constraint requires managers to make investment decisions between mutually exclusive investment opportunities. In a multiperiod agency setting, this paper analyses accounting rules that provide managerial incentives for efficient project selection. In order to motivate a shortsighted manager to expend unobservable effort and to make efficient investment decisions, the principal sets up an incentive scheme based on residual income (e.g. EVATM). The paper shows that income smoothing generates a trade-off between agency costs resulting from differences in discount rates and the costs associated with the congruity of residual earnings.
Year of publication: |
2003
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Authors: | Gaber, Christian |
Publisher: |
Frankfurt a. M. : Johann Wolfgang Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften |
Subject: | Investitionsentscheidung | Betriebliche Wertschöpfung | Projektbewertung | Prinzipal-Agent-Theorie | Lernprozess | Bayes-Statistik | Theorie | Investment Incentives | Performance Measurement | Residual Income |
Saved in:
freely available
Series: | |
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Type of publication: | Book / Working Paper |
Type of publication (narrower categories): | Working Paper |
Language: | English |
Other identifiers: | hdl:10419/76964 [Handle] |
Classification: | M41 - Accounting ; G31 - Capital Budgeting; Investment Policy ; D82 - Asymmetric and Private Information |
Source: |
Persistent link: https://www.econbiz.de/10010316305