EconPapers    
Economics at your fingertips  
 

Real options as a component of the market value of stocks: evidence from the Spanish Stock Market

Pablo de Andres-Alonso, Valentin Azofra-Palenzuela and Gabriel de la Fuente-Herrero
Authors registered in the RePEc Author Service: Pablo de Andrés Alonso ()

Applied Economics, 2005, vol. 37, issue 14, 1673-1691

Abstract: This paper aims to examine how investors' expectations about the value of a firm's real options are reflected in the price of its stocks. If the real-option approach is correct, then the efficient-market hypothesis predicts that stock prices will reflect the available information relative to the real options held by firms and their ability to identify, acquire, maintain and exercise them. The role of investment irreversibility, operating and financial flexibility, business and geographical diversification, and size are examined as indicators of a firm's real option strategy. The empirical analysis of a panel of 101 companies listed on the Spanish Stock Exchange during the period 1991-1997 provides evidence consistent with predictions. The market value of the real option portfolio is significantly and positively related to business diversification, asset irreversibility and operating leverage, and negatively related to size. In addition, financial leverage and geographical diversification are not significantly related to our proxies for the market value of real options. These results are robust even after controlling for industry, and alternative measures of investment flexibility and business diversification.

Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/00036840500181778 (text/html)
Access to full text is restricted to subscribers.

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:taf:applec:v:37:y:2005:i:14:p:1673-1691

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036840500181778

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().

 
Page updated 2021-05-23
Handle: RePEc:taf:applec:v:37:y:2005:i:14:p:1673-1691