The Role of Hurdle Rate in Divisional Performance Evaluation and New Product Development with Alternative Opportunities

13 Pages Posted: 13 May 2019

See all articles by Yasuhiro Mazda

Yasuhiro Mazda

Tohoku University - Graduate School of Economics & Management

Date Written: March 31, 2019

Abstract

This paper investigates the role of hurdle rate in new product development in the situation where the divisional manager is delegated to manage such projects.

I show hurdle rate basically helps control the manager's behaviors regarding risk taking decision and labor intensive expenditures.

I analyze several modified cases and show that there exist cases where such a role of hurdle rate does not function due to the existence of withdrawal opportunities from new product development projects.

Keywords: hurdle rate, new product development, labor intensive expenditure, performance evaluation, innovation

JEL Classification: G31, M41, O31

Suggested Citation

Mazda, Yasuhiro, The Role of Hurdle Rate in Divisional Performance Evaluation and New Product Development with Alternative Opportunities (March 31, 2019). Available at SSRN: https://ssrn.com/abstract=3371778 or http://dx.doi.org/10.2139/ssrn.3371778

Yasuhiro Mazda (Contact Author)

Tohoku University - Graduate School of Economics & Management ( email )

Kawauchi, Aoba-ku
Sendai, 980-8576
Japan

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