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ABSTRACT:This paper based on theory of competitive advantage, and the opportunity of new accounting standards implementation, examined the the applicability factors of the Residual income model from both economic and accounting perspectives,and found that these factors can improve the applicability of the residual income model in China. And more, this paper take competitive advantage analysis as a starting point, combined with residual income advantage which emphasize on value creation, establish a value based management framework of the model system.through the analysis of the value of drivers of RIM. This study found that the residual income has some applicability in China, and both industry and firm level economic factors, such as barriers to entry, industry concentration, the duration of the company’s competitive advantage, can effectively enhance the prediction of the future residual income, and improve the model’s applicability. The implementation of new accounting standards can help improve the value relevance of accounting information, and the value of relevance residual income.The applicability of the model significantly increased under the new standards.This paper also decompose the value drivers of RIM in three level, and found these can guide enterprise strategic decision-making, management control, performance evaluation. Based on these, this paper established the value management framework based on RIM which includes strategic planning, performance management and budget management.
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