Long-term Value Creation Research Articles

Nilai Tambah Modal Manusia dan Keberlangsungan Bisnis Perusahaan Sektor Consumer Non-Cyclicals

The world economic recession caused by the Covid-19 Pandemic distracted companies from maintaining business continuity, the consumer goods sector index declined in the first quarter of 2020 to reach its lowest level since 2013. Business continuity is defined as the company's capability to align its resources to increase opportunities growth and prospects in the future, business continuity has a strategic role in supporting the long-term value creation of the company. This study aims to provide empirical evidence regarding aspects of business continuity in the value-added perspective of human capital. The sample used in this study were 49 companies that are members of the non-cyclicals consumer sector for the 2016-2020 period. The analytical tool used in this research is simple linear regression. The results of this study indicate that the added value of human capital can improve aspects of the company's business continuity.

The Value Relevance of Corporate Sustainability Performance (CSP)

There are two opposite views about corporate sustainability in the existing literature. Sustainability activities are considered as a source of long-term value creation for the shareholders’ interest whereas they also occupy scarce corporate resources and become an extra burden at the expense of shareholders. To examine these contradictory views, this study investigated the value relevance of CSP using a sample of 113 firms belonging to twelve (12) highly sustainable economies as ranked by the Global Sustainability Competiveness Index for the period 2015–2020. The CSP was measured through a Sustainability Index (SI) developed in this study using the GRI framework which takes into account all the three dimensions of sustainability, i.e., economic, environmental, and social. The results of the study showed that CSP significantly explains the variation in stock market prices and hence is value relevant in supporting the shareholders’ value-enhancing role of corporate sustainability. The results are useful for practitioners and policy makers in the field of corporate sustainability.

Barriers and drivers for sustainable business model innovation based on a radical farmland change scenario

AbstractThe agricultural sector has a critical role in creating social and environmental value of natural resources in addition to its traditional role of creating economic value by supplying food to the ever-increasing world population. In fulfilling this dual role, the agricultural sector often faces competing pressures: to operate financially profitable businesses and to create, maintain, and benefit from ecosystem services (ES) in their operations. This paper analyses these pressures in an examination of drivers and barriers to the initiation of the business model innovation process for sustainability (BMIpfS) as perceived by ten agricultural business managers who operate farms in southern Sweden. The paper explores the interplay between managerial cognition and business decisions as revealed in semi-structured interviews. The new ES in focus connect to radical land-use change, paludiculture, as used in the rewetting of farmland intended to reduce the greenhouse gas emissions that drained peat soil causes. The paper contributes to the literature by identifying drivers and barriers that moderates the initiation of the BMIpfS. Although the managers acknowledge the importance of long-term, sustainable social, and environmental value creation, they have grave doubts about the profitability of activities associated with the preservation of peat soils and connected ES. These managers would benefit from taking a more proactive, long-term approach to business model changes for sustainability and from acquiring more knowledge about market demand for sustainability-oriented ES. Successful facilitation and implementation of knowledge transfer and government subsidies that support ES could improve the turning of profits based on sustainable value creation.

The long game of innovation and value creation

PurposeThe purpose of the paper is to emphasize the performance benefits of a long-term innovation and value creation perspective. This paper responds to the recent concept of the imagination premium method for valuing companies. It offers four key takeaways to create a long-term innovation-focused orientation for future value creation.Design/methodology/approachThe research is based on both consulting experience and insight from several studies of executives that were supported by the U.S. Conference Board.FindingsThe research differentiates how high versus low innovators create long-term perspectives and value. High innovators have explicit processes that support innovation, leadership that focuses on long-term performance, resources committed to long-term projects and innovation and knowledge management systems that transfer knowledge throughout the organization.Research limitations/implicationsThe research offers strategic directives aimed at creating long-term value but acknowledges that there are other means to accomplish such objectives.Practical implicationsThis paper offers strategies for executives to create an innovation-focused organizational culture that drives lasting long-term value.Social implicationsFocusing on long-term innovation prioritizes larger social, environmental and business objectives over superficial short-term stock price changes, leading to greater value-creation.Originality/valueThis paper advocates that leadership play the long game and adopt a longer-term view of innovation due to its long-term competitive, employee engagement, sustainability and performance benefits.

The Effect of ESG Ratings on the Value of Chinese Listed Companies

Purpose - ESG(Environmental, Social and Governance) rating is an indicator to predict the sustainable development and long-term value creation of enterprises, which is becoming more and more important. This study divided the ESG rating into each sector(E, S and G) to identify which ESG elements are effective in enhancing enterprise value according to the characteristics of the enterprise, which is different from previous studies. Design/methodology/approach - In this study, Bloomberg ESG Disclosure Score was used to empirically analyze the relationship between ESG ratings and corporate value by taking the listed companies of China’s Shanghai Composite Index from 2017 to 2020 as the object. Findings - First, the relationship between ESG ratings and enterprise value shows a statistically significant positive correlation, which supports the results of previous studies. Second, the analysis results from the classification of ownership structure of enterprises (state-owned enterprises and non-state-owned enterprises) show that compared with state-owned enterprises, the ESG ratings of non-state-owned enterprises is more closely related to enterprise value. Third, the analysis of various industries (manufacturing and non-manufacturing) shows that compared with manufacturing, ESG scores of non-manufacturing has a more positive effect on enterprise value. Lastly, the analysis by industry type (heavy-contaminated companies, non-contaminated companies) confirmed that ESG scores of non-contaminated companies has a positive effect on corporate value than heavy-contaminated companies. Research implications or Originality - This study classified ESG evaluation grades(E, S and G) for listed companies in China and analyzed in detail how they affect corporate value according to corporate characteristics, drawing implications for what ESG indicators should be focused on to increase corporate value.

A flexible and scalable model to improve decision quality in shale plays

Shale asset investment decisions are difficult to model because they are portfolios of options under complex and time-evolving uncertainties. Sequential development decisions must balance short-term cash flow with long-term value creation. Typical assets consist of thousands of locations, making exact analysis impossible. Consequently, decision support tools are very simple, usually consisting of decision trees, fixed price decks, and no midstream constraints.We develop a heuristic that maps the current information of an asset, such as inventory, prices, and estimated production, to a well schedule. We combine the heuristic with Monte Carlo simulation and decision trees to form a shale field development model that includes all relevant features while being scalable to realistic problem sizes. To demonstrate our method's performance, we create a sample shale asset with 370 wells, price and production uncertainty, midstream constraints, and 30 decision periods. On the sample problem, our method exhibits first-order stochastic dominance over the decision tree approach and improves expected value by 407%. Using our modeling approach will improve overall decision quality in shale asset management.

Does corporate social responsibility affect the institutional ownership of firms in the hospitality and tourism industry?

As hospitality and tourism (H&T) businesses mature, they often seek institutional equity financing to support their growth. Capital intensive H&T firms, such as cruise operators, casinos and large restaurant and hotel chains, continuously rely on institutional capital to fund their operations. This study examines which corporate social responsibility dimensions affect H&T firms’ ability to attract institutional equity capital providers. We document that firms with better social and governance performance have higher institutional ownership, particularly by investors focused on long-term growth and value creation, such as dedicated institutional investors, domestic investors and blockholders. Community and environmental performance do not increase institutional holdings.

Short-Selling Pressure and Workplace Safety: Curbing Short-Termism Through Stakeholder Interdependencies

We advance a multistakeholder framework that highlights the influence of stakeholders in tempering short-termist responses to capital market pressures. When firms face pressure from short sellers in the capital market, they sometimes shift attention to short-term stock performance and neglect critical investments that pay off in the long run. Relying on a quasi-natural experiment and establishment-level data on workplace injuries, we find that short-selling pressure causes an increase in employee injuries. Critically, however, the degree to which the response is short-termist depends on the salience of multiple stakeholders (analysts, shareholders, employees, and managers). We discuss the implications for understanding firms’ relations with their stakeholders and, particularly, how these stakeholders influence corporate responses to capital market pressures in ways that matter for long-term value creation. This study also contributes to strategy research by highlighting the downside of capital market deregulation.Funding: Rengong Zhang acknowledges the financial support from the CityU Strategic Research Grant.Supplemental Material: The online appendix is available at https://doi.org/10.1287/orsc.2022.1576 .

Managerial Accounting for Decision-Making and Planning

Managerial Accounting for Decision-Making and Planning

A model for sustainable, partnership-based telehealth services in rural India: An early process evaluation from Tuver village, Gujarat

BackgroundTelehealth can improve access to high-quality healthcare for rural populations in India. However, rural communities often have other needs, such as sanitation or employment, to benefit fully from telehealth offerings, highlighting a need for systems-level solutions. A Business of Humanity approach argues that innovative solutions to wicked problems like these require strategic decision-making that attends to a) humaneness, e.g., equity and safety and b) humankind, or the needs and potential of large and growing markets comprised of marginalized and low-income individuals. The approach is expected to improve economic performance and long-term value creation for partners, thus supporting sustainability.MethodsA demonstration project was conducted in Tuver, a rural and tribal village in Gujarat, India. The project included seven components: a partnership that emphasized power-sharing and complementary contributions; telehealth services; health promotion; digital services; power infrastructure; water and sanitation; and agribusiness. Core partners included the academic partner, local village leadership, a local development foundation, a telehealth provider, and a design-build contractor. This early process evaluation relies on administrative data, field notes, and project documentation and was analyzed using a case study approach.ResultsFindings highlight the importance of taking a systems perspective and engaging inter-sectoral partners through alignment of values and goals. Additionally, the creation of a synergistic, health-promoting ecosystem offers potential to support telehealth services in the long-term. At the same time, engaging rural, tribal communities in the use of technological advances posed a challenge, though local staff and intermediaries were effective in bridging disconnects.ConclusionOverall, this early process evaluation highlights the promise and challenges of using a Business of Humanity approach for coordinated, sustainable community-level action to improve the health and well-being of marginalized communities.

Dеvеlорmеnt of the horizon indех to еvаluаtе lоng-tеrmism of Russiаn non-finаnсiаl companies

Short-termism, the firm’s following strategic management practices for short-term, restricts investment in physical and intellectual capital. Investors and managers should identify and counteract such practices in a timely manner. However, existing academic and practical studies overlook problem of short-termism in emerging markets, lack reliable metrics of short-termism or consider only financial indicators in existing horizon metrics. In this paper, we closed some research gaps and constructed the relative horizon index which evaluated strategic focus of public non-financial companies from various industries. We also performed empirical study of horizon index on the sample of 50 Russian non-financial companies over 2014–2019. It revealed that the energy and utility segments in Russia have the largest share of long-term oriented companies, while the industrial, real estate and consumer goods segments have a significant share of short-term oriented companies. The former is explained by: the significant need for modernization in these sectors; developed corporate government systems of firms; limited incentives to accounting manipulations; and a diverse set of stakeholders. Conversely, the latter is underpinned by low levels of investments in comparison to depreciation of real estate, industrial and consumer goods companies. It is also driven by higher incentives for these companies to play with accounting ratios. We showed that the long-term strategic orientation of the firm is not immediately realized into stable positive economic profit patterns over time. However, there is strong and positive correlation between the firm’s decision to follow long-term strategic orientation and the value of multi-period growth in firms’ economic profit. The results can be used by investors, analysts and asset managers to screen the companies on the subject of their following long-term value creation principles and to compare the ability of the firms to sustain positive economic profit.

Risk Disclosures in Bank Reporting: Sustainable Finance Roadmap Era

AbstractObjective – This research aims to investigate risk disclosures in bank reporting in the era of the sustainable finance roadmap.Methodology – This research uses a content analysis approach with 252 annual reports and 85 stand-alone sustainability reports on banks listed on the Indonesia Stock Exchange for 2014-2020.Results – The research results indicate that risk disclosures contained in 36 bank reports listed on the Indonesia Stock Exchange in the era of the sustainable finance roadmap as an effort to detect risks and anticipate sustainable finance risks in the annual reports and the stand-alone sustainability reports. In line with the Sustainable Finance Action Plan, the banking companies’ effort to provide long-term value creation for sustainable competitive advantage and society and environment and strengthening resilience because they have managed all economic, social, and environmental risks.Research Implications – Strengthening sustainable finance that focuses on the basic regulatory framework and reporting system by anticipating sustainable finance risks can maintain the company's continuity and improve the community's welfare to support the Government in achieving the Sustainable Development Goals.

Climate change risk: The next frontier in banking risk management

Extreme weather events are becoming more frequent, more intense and, to a certain extent, more predictable, according to global climate research. Over time, the effects of climate change could alter dramatically the environment upon which communities, societies and economic activity depend. Meanwhile, a correlating impact on firms, sectors and geographies could render traditional business models ineffective or obsolete. Rapid developments in environmental, social and governance (ESG) initiatives, and rising stakeholder demand for improved sustainability performance, will require banks to take a more integrated and strategic approach to climate risk management. This paper explores the practicalities of integrating climate-related risks into existing risk management frameworks, strategies and processes. It examines the key components and attributes of an effective climate-risk framework. And it elaborates on some of the unique characteristics and business model adaptations that are needed to incorporate climate-change considerations into decision-making processes, including capital allocation, loan approval, portfolio monitoring and reporting. In this way, business models can become more economically efficient and strategically resilient to climate risk and equipped to deliver long-term sustainability and value creation.

The Fork in the Road for Social Enterprises: Leveraging Moral Imagination for Long-Term Stakeholder Support

Social enterprises (SEs) that receive early stakeholder support for their dual economic/social missions risk losing moral legitimacy when stakeholders assess them for social impact and find it lacking. We present a process model that begins at the “fork in the road” of stakeholder assessment and shows that when SEs continue to focus on primary stakeholders at the expense of secondary stakeholders impacted by the firm, they risk losing moral legitimacy and broader stakeholder support. Our model shows the process by which SEs can leverage their moral imagination and develop capabilities to generate long-term stakeholder support and sustained value creation.

Facilitating Building Projects’ Short-Term and Long-Term Value Creation

Real estate and buildings are some of facility managers’ most costly resources. Thus, knowledge about how to get the most out of building or renovation projects both in the short term and in the long term are of great importance for facility managers. This paper investigates which factors are most important for building and renovation projects’ output or short-term value creation, and outcome or long-term value creation, i.e., the completed building’s effect for owners and users. Thus, the focus is not primarily financial and the buildings’ asset value. The study is based on a national questionnaire survey in Norway (550 respondents). Multivariate statistics (Principal Component Analysis and Linear Multiple Regressions validated with bootstrapping) were used to test the hypotheses. Short-term project management priorities, such as early involvement of technical contractors and FM providers, contract strategy and involvement of owners and users largely decide the qualities of the building, and thus the potential for long-term value creation. The most important factors for long-term value creation, i.e., buildings that facilitate the demand organisation’s value creation are the qualities of the completed building, project governance and involvement of owners and users during early phase planning.

THE NEED FOR A PARADIGM SHIFT IN FINANCE: SUSTAINABLE CORPORATE FINANCE

Under current global conditions, finance may play a critical role in allocating investment to sustainable enterprises and projects, thereby hastening the transition to a low-carbon circular economy. Finance promotes risk assessment and, as a result, can aid in addressing the inherent ambiguity surrounding environmental concerns such as the impact of carbon emissions on climate change. In recent decades, thinking about sustainable finance has progressed through several stages, with the emphasis steadily changing from short-term profit to long-term value creation. This study seeks to conduct an examination of the concept and premises of sustainable corporate finance based on literature research, with the goal of bringing arguments to the need to shift the financial paradigm. This emerging perspective emphasizes that, while profit creation and maximization are important, firms must also seek other goals that have an impact on society, such as those connected to sustainable development. The integration of environmental, social, and governance components into financial decision-making processes is referred to as sustainable finance. Recent developments highlight the importance of businesses' commitment to responsible behavior in transforming the company into a truly sustainable enterprise that adds value to the business, society, and the environment.

ESG Importance for Long-Term Shareholder Value Creation: Literature vs. Practice

This article aims to detect how ESG adds value to the long-term shareholder value creation and to discover whether businesses are aware of positive ESG effects and, therefore, whether they will become more ESG-conscious. By conducting a qualitative content analysis on the academic literature, this article firstly aims to determine if shareholders’ value is positively affected by corporate ESG awareness. Secondly, to test whether companies are becoming more conscious about the importance of ESG, the mission statements of publicly listed Central and Eastern European (CEE) companies are compared to their decade-old versions. This analysis allows us to conclude on whether companies have shifted their attention to the ESG factors as a part of their purpose of existence and, therefore, for long-term shareholder value creation, which is one of the main goals of the exchange-listed enterprises. The content analysis results show that companies with higher sustainability awareness ensure shareholder value creation via improved financial performance, management quality as well as reduced risk metrics. Additionally, qualitative nonfinancial factors such as reputation, stakeholder trust, employee satisfaction and engagement provide an even more significant effect on the long-term value than the pure financial matters. The theoretical trend is found to be supported by the fact that sustainability practice and consumer-oriented keywords dominate the mission statements of CEE companies, while keywords related to shareholders and profit experienced the most significant decrease from 2012 to 2021. The present research is unique as it looks at how companies tend to become more ESG aware, integrating the sustainability perspective into their mission statements in response to the global sustainability trend.

A model of long-term value creation

ABSTRACT Companies need to rethink the way they create value and grow their business to thrive in tomorrow’s volatile and uncertain business environment. Companies in virtually every industry are impacted by new disruptive societal trends, such as climate change, energy transition and social inequality. At the same time, companies are increasingly evaluated on their sustainability performance. Still, only a few companies have begun to invent new strategic directions, pioneering strategies focused on creating long-term value, not just for shareholders but for all stakeholders. A playbook on how to create long-term value is currently lacking, making it difficult for companies to capture the opportunities and mitigate the risks created by these societal trends. This paper develops a model of long-term value creation that supports companies in creating long-term value and setting their strategies accordingly. Financial institutions can draw on the model to assess how future proof their investment and/or lending portfolios are.

Labor mobility and antitakeover provisions

How do firms protect their human capital? We test whether firms facing an increased threat of being acquired strengthen their antitakeover provisions (ATPs) in order to bond with their employees. We use the adoption of the Inevitable Disclosure Doctrine (IDD) by US state courts, which exogenously decreases knowledge-worker mobility, thus elevating takeover risk and reducing employee incentives to innovate. Firms respond to the IDD adoption by strengthening ATPs that defend against hostile takeovers, especially when they have greater ex-ante employee mobility and human capital and place greater importance on employee relations. We find no evidence that managers strengthen ATPs for entrenchment or takeover bargaining purposes in this setting. Our findings show that ATPs can be used to credibly commit to employees in order to protect long-term value creation.

Pengaruh Pengelolaan Akuntansi Pertanggungjawaban dan Strategi Perusahaan terhadap Efektivitas Kinerja

This study aims to examine the effect of responsibility accounting management and corporate strategy on the effectiveness of organizational performance. Responsibility accounting plays an important role in compiling accurate and detailed financial information that allows companies to evaluate the performance of specific departments and business units. On the other hand, an effective corporate strategy serves as a guide in achieving long-term goals and value creation. In this context, this study integrates these two aspects to evaluate their impact on overall company performance. Using data from different industries and companies, this study applies quantitative analysis to measure the relationship between responsibility accounting management, strategy implementation, and key performance indicators such as profitability, operational efficiency, and company growth. The results show that effective integration between responsibility accounting and corporate strategy significantly affects the improvement of performance effectiveness. The findings offer practical insights for managers and business practitioners on how to optimize the use of responsibility accounting and strategy to achieve better performance goals.