Two-stage capital budgeting, capital charge rates, and resource constraints
Tóm tắt
We study two-stage, multi-division budgeting mechanisms that allocate scarce resources among divisions using capital charge rates. Each divisional manager observes private sequential project information and competes for scarce resources over two stages. The optimal capital charge rates in our two-stage setting can be quite different from those that arise in a single-stage setting. If the firm faces a resource constraint at only the second stage, a less severe constraint can imply more first-stage project initiation, which can lead to higher second-stage capital charge rates. If resources are constrained at both stages, a decrease in the severity of the constraint at just one stage decreases the capital charge rate at that stage but increases the capital charge rate at the other stage because each constraint affects the intensity of competition at both stages. This result holds regardless of whether the scarce resources are fungible or non-fungible across stages.
Tài liệu tham khảo
Antle, R., Bogetoft, P., & Stark, A. (2001). Information systems, incentives and the timing of investments. Journal of Accounting and Public Policy, 20(4–5), 267–294.
Antle, R., Bogetoft, P., & Stark, A. (2007). Incentive problems and investment timing options In R. Antle, P.J. Liang, & F. Gjesdal (Eds.), Essays in accounting theory in honor of Joel S Demski (pp. 145–168). Berlin: Springer.
Arya, A., & Glover, J. (2001). Option value to waiting created by a control problem. Journal of Accounting Research, 39(3), 405–415.
Arya, A., & Glover, J (2003). Abandonment options and information system design. Review of Accounting Studies, 8(1), 29–45.
Arya, A., Glover, J., & Young, R (1996). Capital budgeting in a multidivisional firm. Journal of Accounting, Auditing and Finance, 11(4), 519–533.
Baiman, S., Fischer, P., Rajan, M., & Saouma, R (2007). Resource allocation auctions within firms. Journal of Accounting Research, 45(5), 915–946.
Baiman, S., Heinle, M., & Saouma, R (2013). Multistage capital budgeting with delayed consumption of slack. Management Science, 59(4), 869–881.
Baiman, S., Heinle, M., & Saouma, R. (2016). Allocating non-monetary resources. Working Paper.
Balakrishnan, R. (1995). Rationing resources among multiple divisions. Journal of Accounting, Auditing and Finance, 10(2), 263–290.
Baldenius, T. (2003). Delegated investment decisions and private benefits of control. The Accounting Review, 78(4), 909–930.
Baldenius, T., Dutta, S., & Reichelstein, S. (2007). Cost allocation for capital budgeting decisions. The Accounting Review, 82(4), 837–867.
Baldenius, T., Nezlobin, A., & Vaysman, I (2016). Managerial performance evaluation and real options. The Accounting Review, 91(3), 741–766.
Bergemann, D., & Välimäki, J. (2010). The dynamic pivot mechanism. Econometrica, 78(2), 771–789.
Christensen, P., Feltham, G., & Wu, M. (2002). “Cost of capital” in residual income for performance evaluation. The Accounting Review, 77(1), 1–23.
Dutta, S. (2003). Capital budgeting and managerial compensation: incentive and retention effects. The Accounting Review, 78(1), 71–93.
Dutta, S., & Fan, Q (2009). Hurdle rates and project development efforts. The Accounting Review, 84(2), 405–432.
Dutta, S., & Reichelstein, S. (2005). Accrual accounting for performance evaluation. Review of Accounting Studies, 10(4), 527–552.
Green, J., & Laffont, J.-J. (1979). Incentives in public decision-making. Amsterdam: North-Holland.
Groves, T. (1973). Incentives in teams. Econometrica, 41(4), 617–631.
Horngren, C., Datar, S., & Rajan, M. (2012). Cost accounting: a managerial emphasis, 14th edn. NJ: Pearson Prentice Hall.
Johnson, N., & Pfeiffer, T (2016). Capital budgeting and divisional performance measurement. Foundations and Trends in Accounting, 10(1), 1–100.
Johnson, N., Pfeiffer, T., & Schneider, G (2013). Multistage capital budgeting for shared investments. Management Science, 59(5), 1213–1228.
Lu, J. (2009). Auction design with opportunity cost. Economic Theory, 38(1), 73–103.
Lu, J., & Ye, L. (2016). Optimal two-stage auctions with costly information acquisition. Working Paper.
McAfee, R., & McMillan, J. (1987). Auctions and bidding. Journal of Economic Literature, 25(2), 699–738.
Mukherjee, T., & Henderson, G. (1987). The capital budgeting process: theory and practice. Interfaces, 17(2), 78–90.
Mukherjee, T., & Hingorani, V (1999). Capital-rationing decisions of Fortune 500 firms: a survey. Financial Practice and Education, 9(1), 7–15.
Ortner, J., Velthuis, L., & Wollscheid, D. (2016). Incentive systems for risky investment decisions under unknown preferences. Management Accounting Research, forthcoming.
Pfeiffer, T., & Schneider, G (2007). Residual income-based compensation plans for controlling investment decisions under sequential private information. Management Science, 53(3), 495–507.
Poterba, J., & Summers, L (1995). A CEO survey of U.S. companies’ time horizons and hurdle rates. Sloan Management Review, 37(1), 43–53.
Reichelstein, S. (1997). Investment decisions and managerial performance evaluation. Review of Accounting Studies, 2(2), 157–180.
Rogerson, W. (1997). Intertemporal cost allocation and managerial investment incentives: a theory explaining the use of economic value added as a performance measure. Journal of Political Economy, 105(4), 770–795.
Stoughton, N., & Zechner, J (2007). Optimal capital allocation using RAROC TM and EVA Ⓡ. Journal of Financial Intermediation, 16(3), 312–342.
Ye, L. (2004). Optimal auctions with endogenous entry. The B.E. Journals: Contributions to Theoretical Economics, 4(1), 1–27.
Ye, L. (2007). Indicative bidding and a theory of two-stage auctions. Games and Economic Behavior, 58(1), 181–207.