Value based performance measures are intended to capture increases in shareholder wealth. At the same time they have to measure the realization of the returns initially planned for. To provide incentives for management to act in the interest of owners, bonus payments are often based on these...

Access price regulation is used in telecommunications to prevent a vertically integrated firm, which controls an essential input, from raising the rivals' costs. When the authorities remove the access price as a strategic tool, it becomes optimal for the regulated firm to use the transfer price...

Economists regularly decry the persistence with which firms set prices above marginal cost and thus, according to the economists, fail to maximize profits. But it is the economists who have it wrong - first, because variable accounting costs are not always a good proxy for marginal economic...

This paper studies a periodic-review pricing and inventory control problem for a retailer, which faces stochastic price-sensitive demand, under quite general modeling assumptions. Any unsatisfied demand is lost, and any leftover inventory at the end of the finite selling horizon has a salvage...

We investigate cost-based access pricing in regulated network industries. Building on recent progress in the accounting literature, we show that a regulator must choose a particular depreciation schedule, namely, relative replacement cost depreciation in order to prevent the network provider...

This study examines control in a teamwork setting, experimentally investigating two financial incentive systems that have been proposed in the agency theory-based analytic literature. Both systems rely on mutual monitoring, the ability of team members to observe each other's actions. However,...

Prior research establishes that boards of directors can encourage risk-averse managers to take risky actions by providing stock options and severance pay. We demonstrate that the ability of these incentives to encourage risk-taking hinges on the level of uncertainty facing the manager, and that...

Economic theory predicts that insiders reveal private information when they trade equity in their firm. However, insider purchases to meet equity holding requirements or sales to satisfy liquidity needs do not reveal private information. We predict that contract terms stipulating CEO equity...

We posit that the value of a manager's human capital depends on the firm's business strategy. The resulting interaction between business strategy and managerial incentives affects the organization of business activities. We illustrate the impact of this interaction on firm boundaries in a...

We consider accounting from an evolutionary perspective. Accounting encompasses the creation of transactional records, the summarization of records in t-accounts, and the preparation of audited financial statements. Accounting's history spans at least 10,000 years dating back to the first human...