Resources, real options, and corporate strategy

Antonio Bernardo and Bhagwan Chowdhry

University of California at Los Angeles, Anderson Graduate School of Management from Anderson Graduate School of Management, UCLA

Abstract: The types of investments a firm undertakes will depend in part on what it expects the outcome of those investments to reveal about its skills, capabilities, and assets (i.e., its resources). We predict that a firm will specialize when young, then experiment in a new line of business for some time, and then either expand into a large, multisegment business or focus and scale up its specialized business. We derive several empirical implications for firm valuations and the reaction of stock prices to news about firm prospects. We also offer a novel explanation for the well-documented ‘‘diversification’’ discount.

Keywords: Real options; Valuation; Corporate strategy; Resources; Learning (search for similar items in EconPapers)
Date: 1998-05-23
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