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2022 | OriginalPaper | Buchkapitel

2. Finance: A Value Paradigm and Equations Without Space

verfasst von : Armen V. Papazian

Erschienen in: The Space Value of Money

Verlag: Palgrave Macmillan UK

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How ridiculous are the boundaries of mortals!

Lucius Annaeus Seneca, Naturales Quaestiones, 65AD

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Vorheriges Kapitel Introduction

Nächstes Kapitel Sustainable Finance: Frameworks Without Value Equations

The philosophical roots of this focus can potentially be traced back to moral philosophy and the utilitarianism of Jeremy Bentham and John Stuart Mill. Although with much reductionism and simplification, Adam Smith’s invisible hand and the assumptions of classical economics along with Alfred Marshall’s introduction of the utility function into economics have contributed to this focus. Friedman’s doctrine (Friedman 1970) has provided the business rationale of shareholder value maximisation which is a key aspect of this focus.

Note that the shareholder value maximisation rationale has also been critiqued extensively in the literature (See Stout, 2012, for a discussion of the theory, history, and critique of ‘shareholder value maximisation’).

I would like to state clearly that there are many forward-looking risk-taking and legacy defining investors who invest to build and improve human society and the future of our children. The discussion here is about the value framework in finance theory and practice, and not a blanket qualification of actual investors.

The NPV equation is sometimes written in the below formats, where the first cash flow CF₀ (II) is included in the right-side term as the first cash flow at t = 0, or excluded but without the negative sign as the negative sign of the first cash flow CF₀ is assumed:

\(\begin{array}{*{20}c} {NPV = \sum_{t = 0}^T {\frac{CF_t }{{\left( {1 + r} \right)^t }}} } & {NPV = CF_0 + \sum_{t = 1}^T {\frac{CF_t }{{\left( {1 + r} \right)^t }}} } \\ \end{array}\)

A look at ‘Value Investing’ built around earnings and fundamental value strategies discussed by Graham and Dodd (1934) in Security Analysis, and by Graham (1949) in The Intelligent Investor, reveals a similar abstraction from impact.

The authors have addressed the recent trend in sustainable finance by integrating ESG Factors in their 7th edition of the same book (2020). More on ESG factors in the next chapter.

My own doctoral research (Papazian, 2004) utilised this RPR methodology to identify stock market winners and losers on the London Stock Exchange using the stocks included in the FT500 index between 1988 and 1992. I subsequently applied clinical methodology (Jensen et al., 1989) to explore and scrutinise the firms included in the portfolios in real time and space between 1988 and 1996.

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Titel: Finance: A Value Paradigm and Equations Without Space
verfasst von: Armen V. Papazian
Verlag: Palgrave Macmillan UK
Buch: The Space Value of Money
Print ISBN: 978-1-137-59487-7

Electronic ISBN: 978-1-137-59489-1

Copyright-Jahr: 2022
DOI: https://doi.org/10.1057/978-1-137-59489-1_2