Title: Incentives for Efficient Inventory Management: The Role of Historical Cost
Abstract:This paper examines inventory management from an incentive perspective. We show that when a manager has private information about future attainable revenues, the residual income performance measure ba...This paper examines inventory management from an incentive perspective. We show that when a manager has private information about future attainable revenues, the residual income performance measure based on historical cost can achieve optimal (second-best) incentives with regard to managerial effort as well as production and sales decisions. The LIFO (last-in–first-out) inventory flow rule is shown to be preferable to the FIFO (first-in–first-out) rule for the purpose of aligning incentives. Our analysis also finds support for the lower-of-cost-or-market inventory-valuation rule in situations where the manager receives new information after the initial contracting stage.Read More
Publication Year: 2005
Publication Date: 2005-07-01
Language: en
Type: article
Indexed In: ['crossref']
Access and Citation
Cited By Count: 43
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot