Competition and the Bad News Principle in a Real Options Framework

Katsumasa Nishide and Kyoko Yagi ()
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Kyoko Yagi: Department of Management Science and Engineering, Akita Prefectural University

No 860, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: We study the investment timing problem where two firms that compete for investment preemption know in advance the time at which the economic condition changes. We show that the so-called Bad News Principle applies to the leader firm’s investment decision near maturity in many cases. This result indicates that the option value to wait does have an impact even in a competitive situation, which is in contrast to the previous literature.

Keywords: Bad news principle; investment timing; competition; real options (search for similar items in EconPapers)
JEL-codes: D43 D92 G32 (search for similar items in EconPapers)
Date: 2013-04
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