Corporate investments and growth options

Jeffrey J. Reuer and Tony W. Tong
Additional contact information
Jeffrey J. Reuer: Kenan-Flagler Business School, University of North Carolina, McColl Building, Chapel Hill, NC 27599, USA, Postal: Kenan-Flagler Business School, University of North Carolina, McColl Building, Chapel Hill, NC 27599, USA
Tony W. Tong: School of Management, State University of New York at Buffalo, Jacobs Management Center, Buffalo, NY 14260-4000, USA, Postal: School of Management, State University of New York at Buffalo, Jacobs Management Center, Buffalo, NY 14260-4000, USA

Managerial and Decision Economics, 2007, vol. 28, issue 8, 863-877

Abstract: Real options theory models certain corporate investments as investments in growth options, yet there is little direct evidence on whether firms actually capture growth option value from these investments. In the current paper, we attempt to bridge this empirical gap, and we also examine the conditions under which the growth option value embedded in such investments is enhanced. Results from a sample of manufacturing firms during 1989-2000 reveal that investments in research and development and joint venture (JV) investments contribute to firms' growth option values. We also show that, among JVs of different ownership structures, only minority JVs increase growth option value. Our findings affirm options theory's assertion that real options can help firms capture valuable upside opportunities, they highlight the value of examining contingencies that drive option value, and they also point to the challenges firms face in realizing the unique benefits the theory emphasizes. Copyright © 2007 John Wiley & Sons, Ltd.

Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://hdl.handle.net/10.1002/mde.1335 Link to full text; subscription required (text/html)

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:mgtdec:v:28:y:2007:i:8:p:863-877

DOI: 10.1002/mde.1335

Access Statistics for this article

Managerial and Decision Economics is currently edited by Antony Dnes

More articles in Managerial and Decision Economics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().