1;Foreword;5 2;Acknowledgments;7 3;Contents;9 4;List of Abbreviations;12 5;1 Introduction;13 6;2 Institutional and Methodological Background for the Analysis of Investment Incentives;18 6.1;2.1 Investment Decision Making Within Divisionalized Firms;18 6.2;2.2 Instruments for Controlling Capital Investment Decisions;26 6.3;2.3 Appropriateness of Various Theoretical Methodologies for the Analysis;43 7;3 Capital Rationing as an Incentive Instrument for Growth Options;48 7.1;3.1 Relevance of Growth Options for R&D-Investments;48 7.2;3.2 Theoretical Results on Capital Budgeting and Growth Options;50 7.3;3.3 Analysis of a Model on Incentive Problems for Growth Options;52 7.4;3.4 Changing Uncertainty over Investment Costs;61 7.5;3.5 Implications for Capital Budgeting Procedures;63 8;4 Residual Income as a Performance Measure for Switching Options;66 8.1;4.1 Residual Income-Based Performance Evaluation and Real Options;66 8.2;4.2 Modelling Investment in a Flexible Manufacturing System;69 8.3;4.3 Design Alternatives for the Residual Income Performance Measure;72 8.4;4.4 Applying the Results to Different Types of Real Options;79 8.5;4.5 Implications for the Design of the Residual Income Performance Measure;81 9;5 Residual Income as a Performance Measure in the Presence of Waiting Options;83 9.1;5.1 Relevance of Waiting Options for Investment Decisions;83 9.2;5.2 Description of the Basic Model;86 9.3;5.3 Comparison of Alternative Residual Income-Based Performance Measures;88 9.4;5.4 Extending the Project Life to Many Periods;95 9.5;5.5 Advantages and Disadvantages of the Proposed Design Alternatives;98 9.6;5.6 Implications for Corporate Practice and Further Research;100 10;6 Implications and Conclusions;101 10.1;6.1 Contribution to the Literature;101 10.2;6.2 Limitations of the Analysis;103 10.3;6.3 Empirical Implications;104 10.4;6.4 Extensions and Further Theoretical Research;106 11;A Appendix;107 11.1;Proofs for Chapter 3;107 11.2;Proofs for Chapter 4;115 12;References;119