Real Options: Taking Stock and Looking Ahead

Yong Li, Barclay James, Ravi Madhavan and Joseph T. Mahoney
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Yong Li: State U of New York at Buffalo
Barclay James: U of Illinois at Urbana-Champaign
Ravi Madhavan: U of Pittsburgh
Joseph T. Mahoney: U of Illinois at Urbana-Champaign

Working Papers from University of Illinois at Urbana-Champaign, College of Business

Abstract: We discuss recent developments in real options theory and its applications to strategic management research, examine the potential difficulties in implementing real options in theory and practice, and propose several areas for future research. Our review shows that real options theory has provided important insights into investment and exit decisions as well as into the choice of investment modes. In addition, extant research studies have contributed substantially to our understanding of whether and how organizations can benefit from real options. Future research that addresses difficulties in applications will further advance both real options theory and practice in strategic management.

Date: 2006
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