Capital budgeting practices and complementarity relations in the transition to modern manufacture: a field-based analysis
Article Abstract:
Caterpillar Inc reformed its capital budgeting practices in line with its transition from mass production technologies to advanced manufacturing systems that allowed specialization and flexibility. Capital budgeting practices used to focus on incremental asset purchase proposals but are now concerned with proposals to acquire different and mutually supporting assets. An analysis of the shift in capital budgeting practices showed that the company was able to generate an operational model of complementarity relations. As described by Milgrom and Roberts (1990, 1995), this complementarity model of the relations among different assets in modern manufacturing organizations is a manifestation of the intricate strategic and organizational events that are involved in these investment practices. However, in contrast to Milgron and Roberts, this description is more complex and focuses on the design of processes and mechanisms.
Publication Name: Journal of Accounting Research
Subject: Business
ISSN: 0021-8456
Year: 1997
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Tax incentives and capital structures: the case of the dividend reinvestent plan
Article Abstract:
The Internal Revenue Code (IRC) section 305(e) tax legislation mandated tax deferral for dividend reinvestment plans (DRPs) of qualifying utility firms. The goal was to increase equity capital through reinvestment of dividends in qualified companies. The effectivity of the bill is doubtful under certain conditions, one of which is the holding of utility stocks by low marginal rate taxpayers, implying little incentive for deferral. This has been disproved by studies. After DRP passage, costs of equity capital and leverage ratios decreased, indicating capital restructuring over time. Tax deferrals led to capital gains, showing increased after-tax returns for utilities with qualifying stocks. Share price gains and share participation rates increased. Equity capital thus became a major source for financing and its cost to qualifying firms decreased.
Publication Name: Journal of Accounting Research
Subject: Business
ISSN: 0021-8456
Year: 1992
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Budgeting and hierarchical control
Article Abstract:
A model was developed to demonstrate that different hierarchical structures can evenly generate incentives and arrange decisions if the organization has the right responsibility accounting system. This assumption runs counter to commonly held notions that efficiency can be improved only through the removal of hierarchical levels. In this model, the managerial accounting system possesses two necessary elements. One is that the payments approved by an agent for other agents in the department can be verified. The other requirement is that the budget of each agent should be verifiable information that can be used by the agent in making a contract with subordinates. It is shown that this particular budget mechanism can optimally create incentives and facilitate coordination.
Publication Name: Journal of Accounting Research
Subject: Business
ISSN: 0021-8456
Year: 1997
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