Real Option Exercise: Empirical Evidence

Paul Décaire (pdecaire@upenn.edu), Erik P. Gilje and Jérôme P. Taillard

No 25624, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study when and why firms exercise real options. Using detailed project-level investment data, we find that the likelihood that a firm exercises a real option is strongly related to peer exercise behavior. Peer exercise decisions are as important in explaining exercise behavior as variables commonly associated with standard real option theories, such as volatility. We identify peer effects using localized exogenous variation in peer project exercise decisions and find evidence consistent with information externalities being important for exercise behavior.

JEL-codes: G30 G31 G32 (search for similar items in EconPapers)
Date: 2019-02
New Economics Papers: this item is included in nep-cfn and nep-exp
Note: CF
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Citations: View citations in EconPapers (2)

Published as Paul H Décaire & Erik P Gilje & Jérôme P Taillard & Stijn Van Nieuwerburgh, 2020. "Real Option Exercise: Empirical Evidence," The Review of Financial Studies, vol 33(7), pages 3250-3306.

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