Corporate Finance and the (In)efficient Exercise of Real Options

29 Pages Posted: 26 Jun 2015

See all articles by Bart M. Lambrecht

Bart M. Lambrecht

University of Cambridge - Judge Business School; Centre for Economic Policy Research (CEPR)

Grzegorz Pawlina

Lancaster University - Department of Accounting and Finance

Date Written: June 25, 2015

Abstract

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

Lambrecht, Bart and Pawlina, Grzegorz, Corporate Finance and the (In)efficient Exercise of Real Options (June 25, 2015). Multinational Finance Journal, Vol. 14, No. 3/4, p. 189-217, 2010. Available at SSRN: https://ssrn.com/abstract=2622940

Bart Lambrecht (Contact Author)

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
44-(0)-1223-339700 (Phone)
44-(0)-1223-339701 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Grzegorz Pawlina

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom
+ 44 1524 592834 (Phone)
+ 44 1524 847321 (Fax)

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