GOAL-CONGRUENCE OF VARIOUS VERSIONS OF RESIDUAL INCOME

In contemporary literature on business finance the prevailing attitude is that realization of projects of non-negative net present value is a safe way for maximizing the wealth of its owners as the ultimate goal of corporations. Since owners make only one of interest groups claiming the right on outcomes, managers, who are operationally independent and superb regarding information, may make decisions on projects which do not contribute to the wealth of corporation as expected at a given moment. Endeavouring to prevent such activities, owners create and choose such metrics of goal achievement to persuade managers to accept only projects of non-negative net present value (goal congruence). Variants of residual income taken as the difference between return on capital and capital charge are often used as performance measures which could considerably vary regarding goal congruence.

Key words: business finance, goal-congruence, variants of residual income

JEL Classification: G32