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Accounting-based Investment Incentives and Real Options

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Real Options

Part of the book series: ZfB-Ergänzungshefte ((ZFB))

Abstract

Several recent studies have shown that incentive schemes based on residual income can induce a better informed manager to make decisions about “normal” investment projects that are optimal from the perspective of the firm’s owner. This paper analyzes such incentive schemes in a real options setting, involving decisions about both the creation of new and the exercise of already existing real options. It is shown that the prior results carry over for some special cases. In more general settings, however, the results do not persist and over- and underinvestment problems cannot be avoided. To alleviate these problems, a contingent depreciation schedule is introduced. Although this rule goes a long way towards a goal-congruent solution for many situations, it cannot fully eliminate all incentives to deviate from first-best decisions.

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Authors and Affiliations

  1. Lehrstuhl für Internationale Unternehmensrechnung, Ruhr-Universität Bochum, Deutschland

    Dr. Nils Crasselt

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  1. Dr. Nils Crasselt
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Editor information

Thomas Dangl Michael Kopel Wolfgang Kürsten

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© 2004 Springer Fachmedien Wiesbaden

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Crasselt, N. (2004). Accounting-based Investment Incentives and Real Options. In: Dangl, T., Kopel, M., Kürsten, W. (eds) Real Options. ZfB-Ergänzungshefte. Gabler Verlag, Wiesbaden. https://doi.org/10.1007/978-3-663-12338-5_2

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  • DOI: https://doi.org/10.1007/978-3-663-12338-5_2

  • Publisher Name: Gabler Verlag, Wiesbaden

  • Print ISBN: 978-3-409-03443-2

  • Online ISBN: 978-3-663-12338-5

  • eBook Packages: Springer Book Archive

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