Performance Evaluation and Corporate Income Taxes in a Sequential Delegation Setting

@inproceedings{Baldenius2003PerformanceEA,
  title={Performance Evaluation and Corporate Income Taxes in a Sequential Delegation Setting},
  author={Tim Baldenius},
  year={2003}
}
We consider a setting where a firm delegates an investment decision and, subsequently, a sales decision to a privately informed manager. For both decisions corporate income taxes have real effects. We show that compensating the manager based on pre-tax residual income can ensure after-tax NPVmaximization (‘‘goal congruence’’) for each decision problem in isolation. However, this metric fails if both decisions are nontrivial, since it requires asset-specific hurdle rates and hence precludes… CONTINUE READING