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Contrasts between classes of assets in fixed investment panel equations as a way of testing real option theory

Ciaran Driver (), Katsushi S. Imai (), Paul Temple and Giovanni Urga ()
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Ciaran Driver: Imperial College Management School, Postal: The Management School, Imperial College, 53 Princes Gate, London SW7 2PG (U.K.)

No B3-3, 10th International Conference on Panel Data, Berlin, July 5-6, 2002 from International Conferences on Panel Data

Abstract: This paper reports estimation of investment equations for two classes of fixed assets: plant & machinery and building for a large sample of UK manufacturing industries. It exploits the different degree of irreversibility that characterises these assets to test the power of real options theory to explain investment under uncertainty. Additionally, the paper uses a specially constructed industry-specific measure of irreversibility for plant and machinery investment to test for real options effects within that class of investment.

Keywords: Investment; Industry; Irreversibility; Real Options; Uncertainty (search for similar items in EconPapers)
JEL-codes: E22 C23 (search for similar items in EconPapers)
Date: 2002-03
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