Corporate investments and growth options
Article first published online: 22 JUN 2007
Copyright © 2007 John Wiley & Sons, Ltd.
Managerial and Decision Economics
Volume 28, Issue 8, pages 863–877, December 2007
How to Cite
Reuer, J. J. and Tong, T. W. (2007), Corporate investments and growth options. Manage. Decis. Econ., 28: 863–877. doi: 10.1002/mde.1335
- Issue published online: 26 NOV 2007
- Article first published online: 22 JUN 2007
Real options theory models certain corporate investments as investments in growth options, yet there is little direct evidence on whether firms actually capture growth option value from these investments. In the current paper, we attempt to bridge this empirical gap, and we also examine the conditions under which the growth option value embedded in such investments is enhanced. Results from a sample of manufacturing firms during 1989–2000 reveal that investments in research and development and joint venture (JV) investments contribute to firms' growth option values. We also show that, among JVs of different ownership structures, only minority JVs increase growth option value. Our findings affirm options theory's assertion that real options can help firms capture valuable upside opportunities, they highlight the value of examining contingencies that drive option value, and they also point to the challenges firms face in realizing the unique benefits the theory emphasizes. Copyright © 2007 John Wiley & Sons, Ltd.