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Managerial performance evaluation for capacity investments

Nezlobin, Alexander, Reichelstein, Stefan and Wang, Yanruo (2015) Managerial performance evaluation for capacity investments. Review of Accounting Studies, 20 (1). 283 - 318. ISSN 1380-6653

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Identification Number: 10.1007/s11142-014-9303-x

Abstract

This paper examines the design of managerial performance measures based on accounting information. The owners of the firm seek to create goal congruence for a better informed manager who is to decide on capacity investments and subsequent production levels. Managerial incentives are shaped by the performance metric and the depreciation schedule for capacity assets. Earlier literature has made the distinction between capacity assets whose degradation is primarily usage-driven as opposed to time-driven. Our analysis also distinguishes between two plausible scenarios in which an inherent lumpiness in the efficient scale of investments necessitates one upfront investment as opposed to a sequence of incremental capacity additions over time. For each of the four resulting scenarios, we obtain a complete characterization of the entire class of goal congruent performance metrics and depreciation schedules. The final part of our analysis also explores goal congruence in settings where the decline of asset productivity is a function of both time and usage.

Item Type: Article
Official URL: https://link.springer.com/journal/11142
Additional Information: © 2014 Springer Science+Business Media New York
Divisions: Accounting
Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
H Social Sciences > HG Finance
JEL classification: M - Business Administration and Business Economics; Marketing; Accounting > M4 - Accounting and Auditing > M40 - General
M - Business Administration and Business Economics; Marketing; Accounting > M4 - Accounting and Auditing > M41 - Accounting
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information
Date Deposited: 04 Nov 2019 11:57
Last Modified: 20 Jan 2020 07:07
URI: http://eprints.lse.ac.uk/id/eprint/102353

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