Stock price, earnings and book value in managerial performance measures

Reichelstein, Stefan ; Dutta, Sunil

Document Type: Working paper
Year of publication: 2004
The title of a journal, publication series: Working Papers
Volume: 1873
Place of publication: Stanford, CA
Publishing house: Stanford Graduate School of Business
ISSN: 1869-0483 , 1869-0491
Publication language: English
Institution: Business School > Stiftungsprofessur für ABWL (Reichelstein 2018-)
Subject: 330 Economics
Abstract: This paper develops a multiperiod principal-agent model in which a manager must be given incentives to undertake investments and to exert personally costly effort. Investments are soft (e.g., intangible assets) and therefore entail measurement errors for the accounting system as it seeks to separate investments from operating expenditures. This separation is of no concern to the stock market which draws on its own information about future cash flows resulting from current investments. The firms stock price, however, reflects all value relevant information, parts of which are not incentive relevant. Optimal incentive provisions must combine forward looking market information with backward looking accounting information. Under certain conditions, optimal performance measures can be expressed as a weighted average of economic value added (residual income) and market value added.

Dieser Datensatz wurde nicht während einer Tätigkeit an der Universität Mannheim veröffentlicht, dies ist eine Externe Publikation.

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