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Emerald Group Publishing Limited
Copyright © 2008, Emerald Group Publishing Limited
Corporate investments and growth options
Article Type: Abstracts From: Strategic Direction, Volume 24, Issue 5.
Reuer J.J., Tong T.W. Managerial and Decision Economics, December 2007, Vol. 28 No. 8, Start page: 863, No. of pages: 15
Purpose To find out if firms operate growth option investments profitably. Design/approach/methodology Describes the real option theory and prior research into the growth option value (GOV) for a firm. Focuses on investment in research and development, and joint ventures. Samples an unbalanced panel data set of 293 US firms from 1989 to 2000 in 19 industries. Breaks the sample into four sub-periods, and regresses for size, leverage, organizational slack, industry growth option value, fixed effects for year and firm, against R&D intensity and joint ventures. Findings Finds that R&D investment, and increased joint ventures by the firm both increase growth option value. Research limitations/implications Proposes applying the model to service industries, and to firms outside the US; looking at other options such as switching options, seeking appropriate proxies; and extending to other types of investment. Originality/value Confirms the role of internal investment and of joint ventures in increasing capability and capacity to grow; and shows minority acquisitions do not.ISSN: 0143-6570Reference: 37AC390DOI: 10.1002/mde.1335
Keywords: Capital investment, Economic growth, R&D, Real options, USA