Real Options and Adverse Incentives: Determining the Incentive Compatible Cost-of-Capital
نویسنده
چکیده
In this paper, we examine the real options approach to capital budgeting in the presence of managerial adverse incentives. We show that real options have the potential to be value enhancing or value destroying depending on managerial incentives. We further examine the possibility of using a generic residual income based rule of managerial compensation to induce the proper investment incentives and we seek to determine the cost-of-capital that must be employed in such a rule.
منابع مشابه
Cost-Effectiveness of Rural Incentive Packages for Graduating Medical Students in Lao PDR
Background The dearth of health workers in rural settings in Lao People’s Democratic Republic (PDR) and other developing countries limits healthcare access and outcomes. In evaluating non-wage financial incentive packages as a potential policy option to attract health workers to rural settings, understanding the expected costs and effects of the various programs ex antecan assist policy-makers ...
متن کاملEssays on Earnings Management, Investment Efficiency, and Managerial Incentives
In response to accounting scandals, market control systems (e.g. regulations related to internal control systems) have become more stringent in order to restore investors’ confidence in capital markets. Tightening control systems has triggered a fierce debate on its effect on both capital markets and the real economy. My dissertation studies how mitigating earnings management by tightening cont...
متن کاملComputing optimal subsidies for Iranian renewable energy investments using real options
For the valuation of the renewable energy investments, providing private investors with a financial incentive to accelerate their investment is a very significant issue. Financial subsidies are known by the majority of the people to be one of the most important drivers in renewable energy expansion and one of the main reasons which result in the development of any industry. In this paper, we pr...
متن کاملCost-Effectiveness of Rural Incentive Packages for Graduating Medical Students in Lao PDR
BACKGROUND The dearth of health workers in rural settings in Lao People's Democratic Republic (PDR) and other developing countries limits healthcare access and outcomes. In evaluating non-wage financial incentive packages as a potential policy option to attract health workers to rural settings, understanding the expected costs and effects of the various programs ex ante can assist policy-makers...
متن کاملStrategic alliances , equity stakes , and entry deterrence $ Richmond D . Mathews
I study how strategic alliances and their impact on future competitive incentives can motivate interfirm equity sales. In the model, an alliance between an entrepreneurial firm and an established firm improves efficiency for both. However, the requisite knowledge transfer heightens the established firm’s incentive to enter one of its partner’s markets. I show that equity can eliminate the entry...
متن کامل