Exploring the Usefulness of Real Options Theory for Foreign Affiliate Divestments: Real Abandonment Options’ Applications

Andrejs Čirjevskis ()
Additional contact information
Andrejs Čirjevskis: Faculty of Business and Economics, RISEBA University of Applied Sciences, Meza Street 3, LV-1048 Riga, Latvia

JRFM, 2024, vol. 17, issue 10, 1-17

Abstract: Scholars propose that future research on real options theory should shift attention away from option buying during the first investment stage and toward option execution after investment. Researchers maintain that it would be interesting to explore the circumstances under which investors decide to withdraw their investments, thereby exercising the option to abandon their investments. The present research seeks to fill the gap in the literature and investigate the applicability of real options theory when an organization enhances sustainability policies while focusing on disciplined capital allocation through exit strategies. With case study data on Natura &Co’s divestment strategy for the Body Shop in November 2023, a real options analysis revealed the method’s practical advantages and disadvantages. This paper investigates real options theory in the context of the divestments of foreign affiliates, providing unique viewpoints and enhancing the theory beyond previous knowledge while also increasing our understanding of the divestiture phenomenon. This study concludes with a review of this paper’s theoretical contributions to real options theory, the managerial and practical/social implications of real options applications in general, and the valuation methods of abandonment options in particular, shedding light on the potential of future research.

Keywords: international business; restructuring; divestment; real options (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/1911-8074/17/10/438/pdf (application/pdf)
https://www.mdpi.com/1911-8074/17/10/438/ (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:gam:jjrfmx:v:17:y:2024:i:10:p:438-:d:1489130

Access Statistics for this article

JRFM is currently edited by Ms. Chelthy Cheng

More articles in JRFM from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().