Suppose all plant and division managers in a firm were paid only a fixed salary with no other incentives or bonuses. Describe the agency problems that would appear in capital investment decisions. How would tying the managers’ compensation to economic value added (EVA) alleviate these problems?
Suppose all plant and division managers in a firm were paid only a fixed salary with no other incentives or bonuses. Describe the agency problems that would appear in capital investment decisions. How would tying the managers’ compensation to economic value added (EVA) alleviate these problems?
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 9QTD
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Suppose all plant and division managers in a firm were paid only a fixed salary with no other incentives or bonuses. Describe the agency problems that would appear in capital investment decisions. How would tying the managers’ compensation to economic value added (EVA) alleviate these problems?
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