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Management Views on Real Options in Capital BudgetingH. Kent BakerAmerican University - Kogod School of Business Shantanu DuttaThe University of Ontario Institute of Technology (UOIT) Samir SaadiQueen's School of Business May 15, 2010 Journal of Applied Finance, Forthcoming Abstract: We survey a large sample of Canadian firms to first learn whether they use real options, the types of real options used, and why firms do not use them. Only 36 of the 214 respondents (16.8%) report using real options, which ranks last among nine capital budgeting techniques. The main reason for using real options is to provide a management tool to help form a strategic vision. The most commonly used real options are growth options and options to defer. Managers report that a lack of expertise and knowledge prevents them from using real options. Our evidence suggests that contrary to optimistic predictions, the use of real options appears disproportionate to their potential as a capital budgeting tool.
Number of Pages in PDF File: 30 Keywords: Real Options, capital Budgeting, Survey JEL Classification: G30, G31 Accepted Paper SeriesDate posted: May 31, 2010 ; Last revised: February 12, 2011Suggested CitationContact Information
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