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Decision rules for long-term value creation

Author

Listed:
  • Schoenmaker, Dirk
  • Schramade, Willem
  • De Adelhart Toorop, Reinier

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.

Suggested Citation

  • Schoenmaker, Dirk & Schramade, Willem & De Adelhart Toorop, Reinier, 2021. "Decision rules for long-term value creation," CEPR Discussion Papers 16074, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16074
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    More about this item

    Keywords

    Capital budgeting; Net present value; Integrated present value; Financial capital; Social capital; Natural capital;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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