 Real options -- delay vs. pre-emption: Do industrial characteristics matter?Ciaran Driver, Paul Temple and Giovanni Urga International Journal of Industrial Organization, 2008, vol. 26, issue 2, 532-545 Abstract: This paper presents an empirical study of the channels of influence from uncertainty to fixed investment suggested by real options theory. Using panel data from the Confederation of British Industry (CBI) Industrial Trends Survey, we report OLS estimates of the impact of uncertainty on investment where the regressors are augmented by cross-sectional averages of the dependent variable and of the individual specific regressors, as recently suggested by Pesaran [Pesaran, M.H., 2006. Estimation and Inference in large heterogeneous panels with a multifactor error structure. Econometrica 74, 967-1012]. The cross-industry pattern of results is checked for consistency with the pattern predicted by real options theory, using a specially constructed data set of industrial characteristics. We find that irreversibility is able to predict the pattern detected, but only when combined with a measure of the information advantage of delay. There is also evidence for expansion options effects; industries with high R&D and advertising intensities tend to have positive uncertainty effects. Date: 2008 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:26:y:2008:i:2:p:532-545 Access Statistics for this article International Journal of Industrial Organization is currently edited by P. Bajari, B. Caillaud and N. Gandal More articles in International Journal of Industrial Organization from Elsevier |
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