It is often claimed that (i) managers work too hard on operational issues and spend not enough effort on strategic activities and (ii) something can be done about this by introducing nonfinancial performance measures as for instance with a balanced scorecard. We give an explanation for both...

We examine the effect of stock options on managerial incentives to invest. Our chief innovation is a model wherein firm value and executive decisions are endogenous. Numerical solutions to our model show that managerial incentives to invest are multi-dimensional and highly sensitive to option...

In this paper, we consider the maintained assumption in previous earnings-management research that budgets are static through time (fixed-target assumption) versus the common belief in practice that budgets ratchet. Using business-unit data from a large multinational corporation, we find...

This short paper studies the Economic Profit, a different label for the Economic Value Added, EVA. Copeland et al. (1995) show that the present value of the free cash flow and the present value of EVA (Market Value Added MVA) are not the same, unless the present value of future EVA (they call it...

We investigate the relation between CEO compensation and accounting performance measures in a sample of publicly- and privately-held property-liability insurance companies. We find a significant positive association between return on assets and the level of compensation for publicly-held...

It is widely accepted that the primary objective or goal of a firm is to maximise the shareholders' equity. While there may be legitimate differences of opinion as to whether this is the sole motivation of a firm's management, it should without a doubt be a dominant variable in management's...

Several comparative cost management studies in Japan and the U.S., have suggested the superiority of long term managerial contracts using future-oriented measurements in reducing costs and increasing value. In this paper, we show that the optimal length of the contract offered a manager is...

In this paper, I examine issues relating to managers' ability to influence their performance evaluation. In contrast to conventional wisdom, I show that such influencing is not necessarily deleterious to shareholder welfare, despite the fact that it is aimed at maximizing the managers'...

We use a linear contracting framework to study how the relation between performance measures used in an agent's incentive contract and the agent's private pre-decision information affects the value of delegating decision rights to the agent. The analysis relies on the idea that available...

Using data from FTSE 350 firms, we examine the factors influencing the explicit relative performance evaluation (RPE) conditions in performance-vested equity grants. We provide evidence on the use of RPE either to improve incentives by removing common risk or by linking greater vesting...