Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/76964
Authors: 
Gaber, Christian
Year of Publication: 
2003
Series/Report no.: 
Working Paper Series: Finance & Accounting, Johann Wolfgang Goethe-Universität Frankfurt a. M. 116
Abstract: 
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.
Subjects: 
Investment Incentives
Performance Measurement
Residual Income
JEL: 
M41
G31
D82
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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