Advertisement

Residual Income as a Performance Measure for Switching Options

Keywords

Investment Decision Real Option Switching Option Initial Investment Strike Price 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. 1.
    See Margrabe (1978) and Carr (1988) for the valuation of the option to switch in a single-person decision context.Google Scholar
  2. 3.
    See Pellens, et al. (1998).Google Scholar
  3. 4.
    See, e.g., Ehrbar (1998); Stern et al. (2001); Young & O’Byrne (2001).Google Scholar
  4. 5.
    See particularly Rogerson (1997); Reichelstein (1997). See also Baldenius (2002); Dutta & Reichelstein (1999); Dutta & Reichelstein (2002b); Dutta & Reichelstein (2002a); Pfeiffer (2000); Reichelstein (2000); Wagenhofer (2003).Google Scholar
  5. 6.
    See, e.g., Young & O’Byrne (2001), pp. 147–158.Google Scholar
  6. 8.
    See Rogerson (1997); Reichelstein (1997); Dutta & Reichelstein (2002a).Google Scholar
  7. 10.
    For example, Antle et al. (2000) and chapter 3 analyze agency models, where the manager has private information about an investment with an embedded real option. However, they analyze capital budgeting issues and do not consider residual income as a performance measure. Dutta & Reichelstein (2002a) analyze residual income as a performance measure for research and development investments, when the project can be abandoned before it generates cash inflows. Dutta (2003) analyzes residual income as a managerial performance measure, when the manager can invest in a growth opportunity that can also be implemented outside the firm.Google Scholar
  8. 14.
    For the first decision, this result follows immediately from proposition 3 in Reichelstein (1997), p. 168. The second decision can be considered as a mutually exclusive investment opportunity, and a derivation of a corresponding result is straightforward for our assumption of identically distributed cash flows.Google Scholar
  9. 15.
    See Rogerson (1997).Google Scholar
  10. 16.
    This result is the well-known Preinreich-Luecke-Theorem, see Preinreich (1937) and Lücke (1955).Google Scholar
  11. 19.
    See Corona (2002) for a detailed analysis of a goal congruent treatment of goodwill in business acquisitions, when residual income is used for managerial performance evaluation.Google Scholar
  12. 20.
    See, e.g., Friedl (2000).Google Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2007

Personalised recommendations