A real options model for loan portfolios of actively traded Philippine universal banks
Jackson J. Tan () and
Fernando L. Trinidad ()
Additional contact information
Jackson J. Tan: University of Santo Tomas
Fernando L. Trinidad: University of Santo Tomas
Journal of Global Entrepreneurship Research, 2018, vol. 8, issue 1, 1-24
Abstract This study applies Real Options Theory to banking in the environment of actively traded Philippine Universal Banks. These banks exist in an environment of imperfect information with regard to lending, and a country where credit scarcity impedes the growth and performance of entrepreneurial activity. We investigate the option premiums of loan portfolios that depict managerial flexibility with investment strategy. A Real Options Model that considers both the strategies to lend and to idle shows that smaller lending institutions will value loans higher than their larger competitors. From the model, the need to maintain smaller variances in loan portfolio returns constrains manager flexibility. Option premiums in the Philippines exhibit sensitivity to information asymmetries. In these findings, this discussion forwards three propositions and their implications. Furthermore, this paper discusses the value of a hedging portfolio to counter risks from information asymmetry. Hence, this paper differs from many models in the existing literature that focus just on the value of the call option, the value of expansion or growth.
Keywords: Real options theory; Banking; Loan portfolio; Valuation; Strategy; Lending (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
http://link.springer.com/10.1186/s40497-018-0091-9 Abstract (text/html)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:spr:jglont:v:8:y:2018:i:1:d:10.1186_s40497-018-0091-9
Ordering information: This journal article can be ordered from
http://www.springer. ... urship/journal/40497
Access Statistics for this article
Journal of Global Entrepreneurship Research is currently edited by Nezameddin Faghih
More articles in Journal of Global Entrepreneurship Research from Springer, UNESCO Chair in Entrepreneurship
Bibliographic data for series maintained by Sonal Shukla ().