Incentives for efficient inventory management: The role of historical cost

• 成果类型: Article
• 署名作者: Baldenius, T; Reichelstein, S
• 署名单位: Columbia University; Stanford University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.1050.0360
• 发表日期: 2005
• 页码: 1032-1045
• 关键词: Inventory Management; historical cost accounting; decentralization; Agency theory

摘要

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.