Decision Rules for Corporate Investment
Forthcoming in International Journal of Financial Studies
20 Pages Posted: 22 Mar 2021 Last revised: 20 Feb 2024
There are 2 versions of this paper
Decision Rules for Corporate Investment
Decision Rules for Long-Term Value Creation
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: Suggested Citation