A primer on sustainable value creation

Ali Fatemi and Iraj Fooladi

Review of Financial Economics, 2020, vol. 38, issue 3, 452-473

Abstract: This paper argues that the current paradigm of value creation has led to a number of unacceptable outcomes. Exaggerated by executive compensation incentives focused on short‐term results, the model of shareholder wealth maximization spurs short‐term profits that fail to take into account those costs that are externalized to other stakeholders. We argue that the all‐inclusive costs can far exceed those explicitly accounted for and that their magnitude is often such that it outweighs the short‐term gains by a wide margin. The cascading nature of these costs, the growing voice of other stakeholders in support of their interests, the erosion of public trust, and the increasingly dire state of the global environment have accelerated the pace of calls for the adoption of a model of sustainable value creation—one in which shareholders’ wealth is maximized without making any of the other stakeholders significantly worse off. Taking an exploratory step toward developing such an ideal process, we present a simple example of a valuation model that incorporates such a principle. We also argue that markets, education, and regulation represent the three indispensable cornerstones of a sustainable value creation framework.

Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://doi.org/10.1002/rfe.1087

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:revfec:v:38:y:2020:i:3:p:452-473

Access Statistics for this article

More articles in Review of Financial Economics from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().