Uncertainty and the Market Valuation of R&D within a Real Options Logic

Strategic Management Journal, Vol. 29, No. 4 , pp. 343 - 361, April 2008

Posted: 29 Apr 2008

See all articles by Raffaele Oriani

Raffaele Oriani

Luiss Guido Carli University

Maurizio Sobrero

University of Bologna - Department of Management

Abstract

The aim of this study is to provide new theoretical insights and empirical evidence on the effect of market and technological uncertainty on the market valuation of a firm's R&D capital. A set of hypotheses is developed adopting a real options logic and tested on a panel dataset of 290 manufacturing firms traded in the UK. Consistently with our theoretical model, we show that market and technological uncertainty have distinct effects on the valuation of R&D investments. The results have several important implications for resource allocation to R&D under uncertainty, which we discuss in the concluding section.

Keywords: R&D, real options, uncertainty, market value

JEL Classification: M21, O32, O33

Suggested Citation

Oriani, Raffaele and Sobrero, Maurizio, Uncertainty and the Market Valuation of R&D within a Real Options Logic. Strategic Management Journal, Vol. 29, No. 4 , pp. 343 - 361, April 2008. Available at SSRN: https://ssrn.com/abstract=1126266

Raffaele Oriani (Contact Author)

Luiss Guido Carli University ( email )

Viale Romania, 32
Rome, 00196
Italy
+390685225908 (Phone)

Maurizio Sobrero

University of Bologna - Department of Management ( email )

Via Capo di Lucca 34
40126 Bologna, Bologna 40126
Italy
+39 051 2098076 (Phone)

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