Corporate Finance and the (In)efficient Exercise of Real Options
29 Pages Posted: 26 Jun 2015
Date Written: June 25, 2015
This paper considers real options within a continuous-time corporate finance context. We analyze whether these real options are exercised effciently, and what the underlying sources of inefficiency are. In particular we consider the role of incomplete information, competition, search costs and financing constraints on investment decisions. We also analyze the stockholder-bondholder and the manager-stockholder agency problems, and their effect on a firm's investment and closure policies.
Keywords: real options, product market competition; costly search; financing constraints; agency problem
JEL Classification: C61, D81, G31
Suggested Citation: Suggested Citation