The Real Options Component of Firm Market Value: The Case of the Technological Corporation


  • Pablo De Andrés-Alonso,

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  • Valentín Azofra-Palenzuela,

  • Gabriel De La Fuente-Herrero

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    • The authors are from the Department of Financial Economics and Accounting, University of Valladolid. They benefited from the useful comments of Michel Dubois, John Beaven, and participants at the SMS 21st Annual International Conference, and at the 5th Workshop in Finance. They especially thank two anonymous referees for many suggestions. Financial support from AECA, and Junta de Castilla y León(grant: VA05204) is also acknowledged. Any errors are the responsibility of the authors.

†Pablo de Andrés-Alonso, Department of Financial Economics and Accounting, University of Valladolid, Avda. Valle Esgueva 6, 47011-Valladolid, Spain.


Abstract:  This paper tests whether stock prices reflect investor's expectations regarding the value of real options. The analysis is implemented based on a sample of 391 high-tech companies listed on main OECD stock markets during the period December 1994 through December 2000. Results confirm the predicted relation between the fraction of a firm's market value not accounted for by its assets-in-place, and a series of variables that are assumed to disclose its real options value, variables such as research and development activity, risk and skewness of stock returns, and size. The results are robust even after controlling for valuation date, sub-industry, country, and alternative measures of risk.