Seminar questions week 2 Bouwens & Kroos (2019) 1. What is the decision that is focal in this study and how is the delegation of decision rights organized in this setting? 2. What kind of customers are served in this bank and why is this relevant? 3. What is the key problem that emerges when decision rights are organized as they are while serving the kind of customers that they do? 4. What are the two components of the riskiness of a loan? In addition, how do loan rates move (increase or decrease) when the credit risk and total outstanding debt increase? Does this make sense to you? 5. What is the main takeaway from Table 5? Is this consistent with the key problem that you discussed at point 3. 6. What is the main takeaway from Table 6? Is this consistent with the key problem that you discussed at point 3. Wallace (1997) 1. What do we mean with the statement that ‘the use of traditional earnings in incentive compensation contracts may lead to overinvestment?’ 2. Why would residual income (as performance measure in their incentive compensation contract) reduce these overinvestment problems? 3. What is the main takeaway from Table 3? Explain these findings. 4. What is the main takeaway from Table 4? Explain these findings? 5. What is the main takeaway from Table 5 if you solely focus on asset turnover as the dependent variable? Explain these findings? 6. We also discussed underinvestment problems. What do we mean with underinvestment problems? Can residual income also be used to address underinvestment problems? Vyaderm business case 1. Describe the old incentive and control system? What are the main problems that emerge from this according to Maurice Vedrine? 2. What do we mean with Economic Value Added (EVA)? What are the main modifications that are made relative to traditional (GAAP) earnings measures? What does Maurice Vedrine expects to achieve with the introduction of the EVA measure? 3. With regard to the implementation, Vedrine initially decides to adopt one corporate EVA center and after criticism shifts toward the adoption of 15 EVA centers. This plan is also aborted and it is ultimately decided to adopt 4 EVA centers. What was the main problem of one EVA center and the main problem of 15 EVA centers? 4. Does it make sense for a pharmaceutical company to consider the adoption of EVA? 5. What is the EVA for Dermatology for 2017? 6. Competitor PJL had to close down due to no longer being FDA compliant. What would you recommend Maurice Vedrine with respect to the unusual high EVA performance for Dermatology in 2017?
