Corporate Investment Decisions and Performance Evaluation

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  • 企業の投資行動と業績評価
  • キギョウ ノ トウシ コウドウ ト ギョウセキ ヒョウカ

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Abstract

<p>From the owners' point of view, the corporate investment decision should be made so as to maximize shareholders wealth in accordance with a rational rule such as present value or internal rate of the return method. But managers are often inclined to neglect this rule and to act against the interests of shareholders and superiors, because they have incentives to maximize their own interests. Hence it is necessary to construct performance evaluation system which makes it possible to appropriately control the managerial investment incentives and to induce managers to follow the rational decision rule.</p><p> In this paper, I discuss how to motivate managers to make optimal investment decisions. For that purpose, I described their investment behaviors by a numerical example of the agency model based on learning about managerial ability, developed by Holmstrom and Ricat i Costa. I investigated a managers' concerns about the impact of their decisions on their future careers or concerns for reputation in a managerial labor market may influence and distort their investment decisions. And I argue that the optimal compensation contract to motivate efficient investment behavior should be long-term with a downward rigid structure like stock options and should be aligned to the economic performance (increase of firm value) for which managers are responsible to generate from the investment. Finally, based on the results of recent empirical research in the U.S., it is shown that a positive relationship between the chief executives pay and corporate performance as measured by shareholder return has become significantly strong over the past 15 years.</p>

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