Real Option Exercise: Empirical Evidence

68 Pages Posted: 4 Mar 2019 Last revised: 12 Apr 2019

See all articles by Paul Décaire

Paul Décaire

University of Pennsylvania

Erik Gilje

University of Pennsylvania - The Wharton School

Jérôme Taillard

Babson College

Date Written: February 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.

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Suggested Citation

Décaire, Paul and Gilje, Erik and Taillard, Jérôme, Real Option Exercise: Empirical Evidence (February 2019). NBER Working Paper No. w25624. Available at SSRN: https://ssrn.com/abstract=3346270

Paul Décaire (Contact Author)

University of Pennsylvania

Erik Gilje

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Jérôme Taillard

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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