The asymptotic optimality of residual income maximization

Regina M. Anctil, James S. Jordan, Aruit Mukherji

Research output: Contribution to journalArticlepeer-review

13 Scopus citations


Residual income subtracts from operating income an interest charge for invested capital. Residual income can be calculated each period from current accounting information, unlike discounted cash flow (DCF), which requires the knowledge of future cash flows. This paper provides a normative justification for residual-income maximization by showing that if investment decisions are made myopically each period to maximize residual income, the resulting path asymptotically maximizes discounted cash flow. Thus, under the assumptions of the model, residual-income maximization is a heuristic that leads to the long-run DCF-optimum.

Original languageEnglish (US)
Pages (from-to)207-229
Number of pages23
JournalReview of Accounting Studies
Issue number3
StatePublished - 1998

All Science Journal Classification (ASJC) codes

  • Accounting
  • General Business, Management and Accounting


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