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Technology Switching Option and the Market Value of the Firm: A Model and an Empirical Test

Real Options Theory

ISBN: 978-0-7623-1427-0, eISBN: 978-1-84950-494-2

Publication date: 13 August 2007

Abstract

The valuation of innovation investments still poses several unresolved questions. Although some authors have analyzed these problems within a framework based on real options theory, their work has not explicitly tested the value of specific real options. The model of firm market value presented in this paper formally includes a technology switching option, which allows a firm to exchange an existing technology with a new technology. We test the model on a panel of publicly traded British firms operating in different manufacturing industries. The results provide support to the claim that the stock market recognizes and evaluates a technology switching option.

Citation

Oriani, R. (2007), "Technology Switching Option and the Market Value of the Firm: A Model and an Empirical Test", Reuer, J.J. and Tong, T.W. (Ed.) Real Options Theory (Advances in Strategic Management, Vol. 24), Emerald Group Publishing Limited, Leeds, pp. 429-458. https://doi.org/10.1016/S0742-3322(07)24016-1

Publisher

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Emerald Group Publishing Limited

Copyright © 2007, Emerald Group Publishing Limited