Accrual-Based Compensation, Depreciation and Investment Decisions

42 Pages Posted: 7 Nov 1999

Multiple version iconThere are 2 versions of this paper

Date Written: September 1999

Abstract

The paper studies incentive effects of accruals used for performance measurement in short-term contracts, if an agent undertakes activities with long-term and short-term consequences. The paper characterizes the optimal depreciation method and shows that it is not consistent with the traditional matching principle. Rather, it aligns the performance measure more with the expected long-term consequences of the investment, and shifts risk away from the agent. The paper also identifies conditions under which it is preferable to let the agent select the depreciation versus using cash flows for performance measurement.

JEL Classification: D82, G31, M41, M44, L20

Suggested Citation

Wagenhofer, Alfred, Accrual-Based Compensation, Depreciation and Investment Decisions (September 1999). Available at SSRN: https://ssrn.com/abstract=184677 or http://dx.doi.org/10.2139/ssrn.184677

Alfred Wagenhofer (Contact Author)

University of Graz ( email )

Austria
+43 316 380 3500 (Phone)
+43 316 380 9565 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
708
Abstract Views
3,765
rank
36,652
PlumX Metrics