Real Option Exercise: Empirical Evidence

79 Pages Posted: 19 Mar 2019

See all articles by Paul H. Décaire

Paul H. Décaire

The Wharton School

Erik Gilje

University of Pennsylvania - The Wharton School

Jérôme Taillard

Babson College

Date Written: February 23, 2019

Abstract

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

H. Décaire, Paul and Gilje, Erik and Taillard, Jérôme, Real Option Exercise: Empirical Evidence (February 23, 2019). Available at SSRN: https://ssrn.com/abstract=3342565 or http://dx.doi.org/10.2139/ssrn.3342565

Paul H. Décaire

The Wharton School ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

Erik Gilje

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Jérôme Taillard (Contact Author)

Babson College ( email )

323 Tomasso Hall
Babson Park, MA 02457
United States
6145994184 (Phone)

HOME PAGE: http://https://www.babson.edu/academics/faculty/faculty-profiles/jerome-taillard.php

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