Accounting-Based Investment Incentives and Real Options PDF Download
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Author: Nils Crasselt
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Some recent studies offer strong theoretical support for the use of residual income as the key performance measure in managerial compensation contracts. In particular, they show that such contracts can induce a better informed manager to make decisions about quot;normalquot; investment projects that are optimal from the perspective of a firm's owner. The present paper studies whether these results carry over to situations involving decisions about both the creation of new and the exercise of already existing real options. For some special cases, this is straightforwardly possible, although the resulting depreciation schedules strongly deviate from depreciation schedules used in practice. In more general settings, the results do not persist and over- and under-investment problems cannot be avoided. To alleviate these problems a contingent depreciation schedule is introduced that goes a long way towards a goal-congruent solution for many situations. However, this depreciation schedule deviates even stronger from methods actually applied by firms. These results contribute to the existing literature in two ways: On the one hand, they enhance our knowledge of the possibilities and limitations of accounting-based incentive schemes. On the other hand, they illustrate the difficulties of designing incentive contracts for real options situations. Practically applied methods appear to be less useful for such situations than for situations involving quot;normalquot; investment projects.
Author: Nils Crasselt
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Some recent studies offer strong theoretical support for the use of residual income as the key performance measure in managerial compensation contracts. In particular, they show that such contracts can induce a better informed manager to make decisions about quot;normalquot; investment projects that are optimal from the perspective of a firm's owner. The present paper studies whether these results carry over to situations involving decisions about both the creation of new and the exercise of already existing real options. For some special cases, this is straightforwardly possible, although the resulting depreciation schedules strongly deviate from depreciation schedules used in practice. In more general settings, the results do not persist and over- and under-investment problems cannot be avoided. To alleviate these problems a contingent depreciation schedule is introduced that goes a long way towards a goal-congruent solution for many situations. However, this depreciation schedule deviates even stronger from methods actually applied by firms. These results contribute to the existing literature in two ways: On the one hand, they enhance our knowledge of the possibilities and limitations of accounting-based incentive schemes. On the other hand, they illustrate the difficulties of designing incentive contracts for real options situations. Practically applied methods appear to be less useful for such situations than for situations involving quot;normalquot; investment projects.
Author: Gunther Friedl
Publisher: Springer Science & Business Media
ISBN: 3540482687
Category : Business & Economics
Languages : en
Pages : 129
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Book Description
This work analyzes the problem of delegated decision-making within firms when investment projects are characterized by the possibility to make subsequent decisions after the initial investment decision has been made. By analyzing this question, the monograph combines and unifies two important lines of literature: on the one hand the literature on controlling investment decisions, on the other hand the investment valuation literature.
Author: Rick Antle
Publisher: Springer Science & Business Media
ISBN: 0387303995
Category : Business & Economics
Languages : en
Pages : 334
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Book Description
The integration of accounting and the economics of information developed by Joel S. Demski and those he inspired has revolutionized accounting thought. This volume collects papers on accounting theory in honor of Professor Demski. The book also contains an extensive review of Professor Demski’s own contributions to the theory of accounting over the past four decades.
Author: James Allen Gentry
Publisher:
ISBN:
Category : Investments
Languages : en
Pages : 338
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Book Description
Author: Jeffrey J. Reuer
Publisher: Emerald Group Publishing
ISBN: 1849504946
Category : Business & Economics
Languages : en
Pages : 520
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Book Description
Examines the ways in which real options theory can contribute to strategic management. This volume offers conceptual pieces that trace out pathways for the theory to move forward and presents research on the implications of real options for strategic investment, organization, and firm performance.
Author: Han T. J. Smit
Publisher: Princeton University Press
ISBN: 1400829399
Category : Business & Economics
Languages : en
Pages : 504
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Book Description
Corporate finance and corporate strategy have long been seen as different sides of the same coin. Though both focus on the same broad problem, investment decision-making, the gap between the two sides--and between theory and practice--remains embarrassingly large. This book synthesizes cutting-edge developments in corporate finance and related fields--in particular, real options and game theory--to help bridge this gap. In clear, straightforward exposition and through numerous examples and applications from various industries, Han Smit and Lenos Trigeorgis set forth an extended valuation framework for competitive strategies. The book follows a problem-solving approach that synthesizes ideas from game theory, real options, and strategy. Thinking in terms of options-games can help managers address questions such as: When is it best to invest early to preempt competitive entry, and when to wait? Should a firm compete in R&D or adopt an accommodating stance? How does one value growth options or infrastructure investments? The authors provide a wide range of valuation examples, such as acquisition strategies, R&D investment in high-tech sectors, joint research ventures, product introductions in consumer electronics, infrastructure, and oil exploration investment. Representing a major step beyond standard real options or strategy analysis, and extending the power of real options and strategic thinking in a rigorous fashion, Strategic Investment will be an indispensable guide and resource for corporate managers, MBA students, and academics alike.
Author: Robert K. Dixit
Publisher: Princeton University Press
ISBN: 1400830176
Category : Business & Economics
Languages : en
Pages : 484
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Book Description
How should firms decide whether and when to invest in new capital equipment, additions to their workforce, or the development of new products? Why have traditional economic models of investment failed to explain the behavior of investment spending in the United States and other countries? In this book, Avinash Dixit and Robert Pindyck provide the first detailed exposition of a new theoretical approach to the capital investment decisions of firms, stressing the irreversibility of most investment decisions, and the ongoing uncertainty of the economic environment in which these decisions are made. In so doing, they answer important questions about investment decisions and the behavior of investment spending. This new approach to investment recognizes the option value of waiting for better (but never complete) information. It exploits an analogy with the theory of options in financial markets, which permits a much richer dynamic framework than was possible with the traditional theory of investment. The authors present the new theory in a clear and systematic way, and consolidate, synthesize, and extend the various strands of research that have come out of the theory. Their book shows the importance of the theory for understanding investment behavior of firms; develops the implications of this theory for industry dynamics and for government policy concerning investment; and shows how the theory can be applied to specific industries and to a wide variety of business problems.
Author: Lenos Trigeorgis
Publisher: MIT Press
ISBN: 9780262201025
Category : Business & Economics
Languages : en
Pages : 452
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Book Description
Comprehensive in scope, Real Options reviews current techniques of capital budgeting and details an approach (based on the pricing of options) that provides a means of quantifying the elusive elements of managerial flexibility in the face of unexpected changes in the market. In the 1970s and the 1980s, developments in the valuation of capital-investment opportunities based on options pricing revolutionized capital budgeting. Managerial flexibility to adapt and revise future decisions in order to capitalize on favorable future opportunities or to limit losses has proven vital to long-term corporate success in an uncertain and changing marketplace. In this book Lenos Trigeorgis, who has helped shape the field of real options, brings together a wealth of previously scattered knowledge and research on the new flexibility in corporate resource allocation and in the evaluation of investment alternatives brought about by the shift from static cash-flow approaches to the more dynamic paradigm of real options—an approach that incorporates decisions on whether to defer, expand, contract, abandon, switch use, or otherwise alter a capital investment. Comprehensive in scope, Real Options reviews current techniques of capital budgeting and details an approach (based on the pricing of options) that provides a means of quantifying the elusive elements of managerial flexibility in the face of unexpected changes in the market. Also discussed are the strategic value of new technology, project interdependence, and competitive interaction. The ability to value real options has so dramatically altered the way in which corporate resources are allocated that future textbooks on capital budgeting will bear little resemblance to those of even the recent past. Real Options is a pioneer in this area, coupling a coherent picture of how option theory is used with practical insights in into real-world applications.
Author: Eduardo S. Schwartz
Publisher: MIT Press
ISBN: 9780262693189
Category : Business & Economics
Languages : en
Pages : 890
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Book Description
The study of investment under uncertainty was stagnant for several decades until developments in real options revitalized the field. The topics covered in this book include the reasons behind the under-investment programme.
Author: Frank J. Fabozzi
Publisher: MIT Press
ISBN: 0262336901
Category : Business & Economics
Languages : en
Pages : 449
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Book Description
Financial aspects of launching and operating a high-tech company, including risk analysis, business models, U.S. securities law, financial accounting, tax issues, and stock options, explained accessibly. This book offers an accessible guide to the financial aspects of launching and operating a high-tech business in such areas as engineering, computing, and science. It explains a range of subjects—from risk analysis to stock incentive programs for founders and key employees—for students and aspiring entrepreneurs who have no prior training in finance or accounting. The book begins with the rigorous analysis any prospective entrepreneur should undertake before launching a business, covering risks associated with a new venture, the reasons startup companies fail, and the stages of financing. It goes on to discuss business models and their components, business plans, and exit planning; forms of business organization, and factors to consider in choosing one; equity allocation to founders and employees; applicable U.S. securities law; and sources of equity capital. The book describes principles of financial accounting, the four basic financial statements, and financial ratios useful in assessing management performance. It also explains financial planning and the use of budgets; profit planning; stock options and other option-type awards; methodologies for valuing a private company; economic assessment of a potential investment project; and the real options approach to risk and managerial flexibility. Appendixes offer case studies of Uber and of the valuation of Tentex.
