№ 10/2015

Fìnansi Ukr. 2015 (10): 104–115

FINANCES OF THE INSTITUTIONAL SECTORS

TERESHHENKO Oleh ¹, MAKARENKO Tetiana

¹SHEE “Kyiv National Economic University named after Vadym Hetman”
OrcID ID : https://orcid.org/0000-0001-8808-1383

Conceptual approaches to corporate residual income determination

The article is devoted to the investigation of residual income concepts and determination of the most appropriate one for the use as a tool of improvement of financial and investment decisions effectiveness and a behavior controlling instrument. Three models of residual income calculation are defined: accounting, economic and hybrid. The classification of residual income ratios according to the mentioned models is under consideration in the given article. Authors highlight the essence and the calculation peculiarities of the most common ratios such as: economic value added (EVA), residual economic income (REI) and refined economic value added (REVA). The article investigates advantages and disadvantages of each concept as a behavior controlling tool and investment project’s performance measure. According to the conducted calculation it is concluded that economic value added is a weak goal congruent measure. Weak goal congruence does not ensure proper investment decision making in case of manager’s impatient behavior. Taking into account all pros and cons of analyzed measures accounting model of residual income (represented by EVA ratio) is concerned to be the most appropriate one for the use as a behavior controlling tool. To minimize defined EVA’s shortcomings (such as underinvestment problem or manager’s impatient behavior) it is proposed the use of ?EVA as a key performance indicator.

Keywords:residual income, economic value added, behavior controlling, investment project, corporate value

JEL: D20, D24, G30, G32

Tereshhenko O. . Conceptual approaches to corporate residual income determination / O. . Tereshhenko, T. MAKARENKO // Фінанси України. - 2015. - № 10. - C. 104-115.

Article original in Ukrainian (pp. 104 - 115)

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