bma9e13 agency problems, management compensation, and the measurement of performance principles of corporate finance 9th edition 公司金融教学课件

,Chapter 13,PrinciplesofCorporateFinanceNinth Edition,Agency Problems, Management Compensation, and The Measurement of Performance,Slides byMatthew Will,Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved,McGraw Hill/Irwin,Topics Covered,Incentives and CompensationMeasuring and Rewarding Performance: Residual Income and EVABias in Accounting Measures of Performance,The Principal Agent Problem,Shareholders = Owners,Managers = Employees,Question: Who has the power?Answer: Managers,Information Problems,1. Consistent Forecasts2. Reducing Forecast Bias3. Getting Senior Management Needed Information4. Eliminating Conflicts of Interest,The correct information is ,Incentives,Reduced effortPerksEmpire buildingEntrenching investmentAvoiding risk,Agency Problems in Capital Budgeting,Incentive Issues,Monitoring - Reviewing the actions of managers and providing incentives to maximize shareholder value.Free Rider Problem - When owners rely on the efforts of others to monitor the company.Management Compensation - How to pay managers so as to reduce the cost and need for monitoring and to maximize shareholder value.,CEO Compensation (2005),Thousands of Dollars,Residual Income & EVA,Techniques for overcoming errors in accounting measurements of performance.Emphasizes NPV concepts in performance evaluation over accounting standards.Looks more to long term than short term decisions.More closely tracks shareholder value than accounting measurements.,Residual Income & EVA,IncomeSales 550COGS 275Selling, G&A 75 200taxes 35% 70Net Income$130,AssetsNet W.C. 80Property, plant and equipment1170less depr.360Net Invest.810Other assets110Total Assets$1,000,Quayle City Subduction Plant ($mil),Residual Income & EVA,Quayle City Subduction Plant ($mil),Given COC = 10%,Residual Income & EVA,Residual Income or EVA = Net Dollar return after deducting the cost of capital,EVA is copyrighted by Stern-Stewart Consulting Firm and used with permission.,Residual Income & EVA,Quayle City Subduction Plant ($mil),Given COC = 10%,EVA is copyrighted by Stern-Stewart Consulting Firm and used with permission.,Economic Profit,Economic Profit = capital invested multiplied by the spread between return on investment and the cost of capital.,Economic Profit,Quayle City Subduction Plant ($mil),Example at 10% COC continued.,Message of EVA,+Managers are motivated to only invest in projects that earn more than they cost.+EVA makes cost of capital visible to managers.+Leads to a reduction in assets employed.-EVA does not measure present value-Rewards quick paybacks and ignores time value of money,EVA Lesson,Example A movie producer generates $30 million in net income during the 4 month run of the movie “Revenge of the Finance Professors.” Movie rentals and post theater income is forecasted to be nominal. The cost to produce the movie was $100 million. Given a 10% cost of capital, what is the EVA of the project and was it a good investment?,Answer - While the EVA is positive, the movie industry highlights a major shortfall of EVA. It ignores the fact that no long term benefit accrues from a movie. Thus, the positive EVA is misleading. The project is a loser, despite its high quality subject matter.,EVA of US firms - 2005,($ in millions),Accounting Measurements,Accounting Measurements,ECONOMICACCOUNTINGCash flow +Cash flow +change in PV =change in book value =Cash flow -Cash flow -economic depreciationaccounting depreciationEconomic incomeAccounting incomePV at start of yearBV at start of year,INCOME,RETURN,Nodhead Book Income & ROI,Nodhead Store Forecasts,Nodhead Peer Book ROI,Nodhead Growth v. Return,Rate of Return (%),Rate of Growth (%),Economic rate