Value Based Management auf Basis von ERIC

Earnings less riskfree Interest Charge (ERIC) is a new residual income concept forValue Based Management (VBM), which takes the true risk and time preferences ofshareholders into account. In this paper management based on ERIC is discussedfrom a theoretical and from a more practical point of view. Starting in a theoreticalworld it is shown that ERIC fulfills the specific basic theoretical requirements in allareas of VBM. In particular using ERIC in VBM ensures that planing, performancemeasurement, management incentives and decentralization are goal congruent withrespect to market value. In a second step market imperfections and diverging preferencesof managers, which lead to conflict of interest between individual shareholdersand between management and shareholders, are considered. Accounting principlesfor determining residual income as ERIC are established. It is shown that regardingthese accounting principles can substantially diminish conflict of interest and enhanceshareholder value.