New study reveals key to maximizing investment returns and managerial performance
The paper discusses how to set up incentives for managers making investment decisions. They suggest that using Residual Income as a performance measure can make sure managers choose only profitable projects. If the manager and owner have the same discount rate, the best depreciation rules are unclear. But if the manager's discount rate can vary, combining a specific depreciation policy with Residual Income is the best way to ensure managers make decisions that align with the owner's goals.