Management Views on Real Options in Capital Budgeting
Journal of Applied Finance, Forthcoming
30 Pages Posted: 31 May 2010 Last revised: 12 Feb 2011
There are 2 versions of this paper
Management Views on Real Options in Capital Budgeting
Management Views on Real Options in Capital Budgeting
Date Written: May 15, 2010
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.
Keywords: Real Options, capital Budgeting, Survey
JEL Classification: G30, G31
Suggested Citation: Suggested Citation
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