Decision Rules for Corporate Investment

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: 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