Economics, Econometrics and Finance
8 years ago

Maximizing residual income leads to long-term financial success, study finds.

SSRN Electronic Journal
The Asymptotic Optimality of Residual Income Maximization
Regina M. Anctil, James S. Jordan, Arijit Mukherji

Paper Summary

Related papers

Business, Management and Accounting
4 years ago

Unlocking Firm Value: How Capital Expenditures Shape Future Financial Success

Value-based Management
Business, Management and Accounting
4 years ago

Inconsistent assumptions lead to vastly different equity value estimates.

Value-based Management
Earnings Management
Corporate Governance
2 views
Business, Management and Accounting
4 years ago

New valuation framework eliminates need to estimate future cash flows.

Value-based Management
Real Options

Residual income maximization can lead to long-term financial success by focusing on maximizing profits each period. This approach, which involves subtracting an interest charge from operating income, is shown to asymptotically maximize discounted cash flow over time. By making investment decisions based on maximizing residual income, companies can ultimately achieve the best financial outcomes without needing to predict future cash flows.