Real Option Exercise: Empirical Evidence
88 Pages Posted: 19 Mar 2019 Last revised: 25 Sep 2019
Date Written: September 24, 2019
We study when and why firms exercise real options. Using detailed project-level investment data, we find that the likelihood that a firm exercises a real option is strongly related to peer exercise behavior. Peer exercise decisions are as important in explaining exercise behavior as variables commonly associated with standard real option theories, such as volatility. We identify peer effects using localized exogenous variation in peer project exercise decisions and find evidence consistent with information externalities being important for exercise behavior.
Keywords: real option, exercise, project-level, peers, information externality
JEL Classification: G30, G31, G32
Suggested Citation: Suggested Citation