Decision Rules for Long-term Value Creation

23 Pages Posted: 22 Mar 2021 Last revised: 10 May 2021

See all articles by Willem Schramade

Willem Schramade

RSM Erasmus University; Sustainable Finance Factory

Dirk Schoenmaker

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

Reinier De Adelhart Toorop

Impact Institue

Date Written: May 7, 2021

Abstract

Future-oriented companies manage for long-term value creation (LTVC) rather than merely for shareholder value or stakeholder value. Managing for LTVC involves managing and balancing several types of value (financial, social and environmental) at the same time, often involving trade-offs. Companies need to have decision rules that help them make investment decisions accordingly. This article derives such decision rules by starting from what is needed for LTVC, and by showing to what extent it differs from shareholder value maximisation only. It also outlines transition pathways for companies that are currently value destructive on one of the dimensions. Finally, it introduces a few simple models that allow for the prioritisation of specific types of value, in line with a company’s purpose.

Keywords: Capital budgeting, net present value, integrated present value, financial capital, social capital, natural capital

JEL Classification: G31, G34

Suggested Citation

Schramade, Willem and Schoenmaker, Dirk and De Adelhart Toorop, Reinier, Decision Rules for Long-term Value Creation (May 7, 2021). Available at SSRN: https://ssrn.com/abstract=3779118 or http://dx.doi.org/10.2139/ssrn.3779118

Willem Schramade

RSM Erasmus University ( email )

P.O. Box 1738
Room T09-53
3000 DR Rotterdam
Netherlands

Sustainable Finance Factory ( email )

18
Rotterdam, 3034 SG
0682011037 (Phone)

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

Reinier De Adelhart Toorop

Impact Institue ( email )

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

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

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