Decision Rules for Corporate Investment

Forthcoming in International Journal of Financial Studies

20 Pages Posted: 22 Mar 2021 Last revised: 20 Feb 2024

See all articles by Reinier De Adelhart Toorop

Reinier De Adelhart Toorop

Impact Institue

Dirk Schoenmaker

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM); Centre for Economic Policy Research (CEPR)

Willem Schramade

Nyenrode Business University

Multiple version iconThere are 2 versions of this paper

Date Written: February 18, 2024

Abstract

We investigate decision rules for corporate investment by designing a company value frontier. This company value frontier allows for balancing financial value and social and environmental impact. This article develops novel value concepts – ranging from shareholder value to shareholder welfare and integrated value – resulting in varying preferences for social and environmental impact or value. Next, these preferences are incorporated in investment decision rules. The traditional net present value (NPV) rule optimises only financial value. We propose a new integrated present value (IPV) decision rule which includes a preference for social and environmental value without neglecting financial value. Applying the new IPV rule, responsible companies are able to achieve more sustainable outcomes.

Keywords: Shareholder value, shareholder welfare, integrated value, capital budgeting

JEL Classification: G3, H23, I3, L21

Suggested Citation

De Adelhart Toorop, Reinier and Schoenmaker, Dirk and Schramade, Willem, Decision Rules for Corporate Investment (February 18, 2024). Forthcoming in International Journal of Financial Studies, Available at SSRN: https://ssrn.com/abstract=3779118 or http://dx.doi.org/10.2139/ssrn.3779118

Reinier De Adelhart Toorop

Impact Institue ( email )

United States
+31(0)20 240 3440 (Phone)

HOME PAGE: http://https://www.impactinstitute.com/

Dirk Schoenmaker (Contact Author)

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam
Netherlands

HOME PAGE: http://www.rsm.nl/people/dirk-schoenmaker/

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Willem Schramade

Nyenrode Business University ( email )

Straatweg 25
P.O. Box 130
Breukelen, 3620 AC
Netherlands

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