@article{116e7f7f9312402eb2180f7d7e61fb02,
title = "Performance measurement for investment decisions under capital constraints",
abstract = "An owner delegates investment decisions to a better informed manager whose time preferences are unknown to the owner. Due to exogenous capital constraints, not all profitable projects can be undertaken, and therefore the owner wants the manager to select the NPV-maximizing set of projects. We show that the relative benefit cost allocation scheme proposed by prior literature does not solve this problem. Adopting the same information structure as in Rogerson (J Polit Econ 105, 770-795, 1997) and Reichelstein (Rev Account Stud 2, 157-180, 1997), we demonstrate how to obtain robust goal congruence using residual income. The resulting revenue recognition and cost allocation rules lead to a performance measure reflecting the expected NPV-ranking of projects in each and every period.",
keywords = "Accrual accounting, Capital budgeting, EVA, NPV maximization, Performance measurement, Residual income, Revenue recognition",
author = "Alwine Mohnen and Moshe Bareket",
note = "Funding Information: Acknowledgements For helpful comments and suggestions we want to thank the participants of research seminars at CUNY University-Baruch College, Carnegie Mellon University, Columbia University, Duke University, INSEAD, London School of Business, Northwestern University, New York University, Stanford University, University of California at Berkeley, University of Cologne, University of Pennsylvania, and Yale University. Additionally we are grateful for the comments at the workshop on Personnel Economics in Zurich, EIASAM Workshop of Accounting and Economics in Frankfurt, EEA in Prag, Annual Conference of the German Association of Economists in Dresden. Our special thanks go to Tim Baldenius, Qi Chen, Masako Darrough, Sunil Dutta, Yuji Ijiri, Deen Kemsley, Nahum Melumad, Jim Ohlson, Stephen Penman, Thomas Pfeiffer, Bharat Sarath, Katherine Schipper, Dirk Sliwka, Amir Ziv, two anonymous referees, and Stefan Reichelstein, the editor. Moshe Bareket acknowledges financial support from the Fuqua School of Business, Duke University. Alwine Mohnen thanks the German Research Foundation (DFG) for a research fellowship within the Postdoc-Program, MO-1663/1–1, supporting her stay at the GSB, Stanford University.",
year = "2007",
month = mar,
doi = "10.1007/s11142-006-9020-1",
language = "English",
volume = "12",
pages = "1--22",
journal = "Review of Accounting Studies",
issn = "1380-6653",
publisher = "Springer New York",
number = "1",
}