The increasing importance of intangible assets in modern economies is driving companies to include measures of intangible assets in managerial performance evaluations. For the multiperiod principal-agent model analyzed in this paper, a manager must be motivated to invest in intangible assets like customer satisfaction or product quality. The intangible asset is not verifiable for contracting purposes but the parties can rely on a noisy indicator of the current asset value. If the agent is risk neutral, a fair value accounting method attains goal congruence when residual income is used as a performance measure. In an agency setting with a risk averse agent, however, optimality requires residual income to be adjusted to accommodate risk sharing concerns. These adjustments result in a class of Value Added performance measures which effectively aggregate the current cash flow and consecutive realizations of the noisy indicator of the intangible asset. This class of performance measures is shown to be optimal for different scenarios regarding contract commitment and observability of the actual investment decisions.
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