The use of fixed capital budgets is an empirically well-documented phenomenon in business practice. Whensoever some profitable investment opportunities cannot be realized, managers have to make investment decisions between mutually exclusive investment opportunities. In a multiperiod agency...

In addition to other contributions to the literature, this note shows how value created can be measured if firms are financed not only by equity, but also by debt. We deal with this capital structure using the weighted average cost of capital (WACC) approach. We show that measuring value...

Research in budgeting suggests that subordinates may exhibit economically significant degrees of honesty, in spite of pecuniary incentives to do otherwise. This study continues the exploration of honesty in budgeting along two dimensions. First, unlike prior experiments, we measure the...

The financing and capital budgeting decisions of the multinational are distorted by factors including barriers to financial flows such as exchange controls, different national tax systems, political risks, international capital market segmentation, foreign exchange risks and the organizational...

Much of the production in firms takes place over time. This paper seeks to understand the value of interim performance information on long projects. In particular, the model explores the sorting effects of performance evaluations. Conducting an interim performance evaluation increases efficiency...

In participative budgeting settings, less informed superiors elicit information from privately informed subordinates. In these situations, subordinates' honesty preferences should substantially enhance the efficiency of the budgeting process. In fact, recent research on budgeting suggests that...

This is the first chapter of our book Principles of Cash Flow Valuation. It is an overview of what we present in the book. In this chapter, we present an informal introduction to the basic concepts and ideas in market-based cash flow valuation. The simplified exposition will provide sufficient...

This paper considers an agency model in which a firm's manager receives private information about an investment project. The manager has unique skills that are essential for implementing the project, and he can pursue the project inside the firm or as an outside venture on his own. The firm's...

This paper examines a multiperiod principal-agent model in which a divisional manager has superior information regarding the profitability of an investment project available to his division. The manager also contributes to the periodic operating cash flows of his division through personally...

This paper examines a multi-period agency model in which a manager makes investment decisions in each period. Performance measures based only on realized cash flows are essentially uninformative about value creation at any intermediate point in time. If the principal has access to additional...