The Real Options Component of Firm Market Value: The Case of the Technological Corporation

30 Pages Posted: 15 Apr 2006

See all articles by Pablo de Andrés

Pablo de Andrés

Universidad Autonoma de Madrid; ECGI

Valentin Azofra-Palenzuela

University of Valladolid - Department of Finance and Accounting

Gabriel de la Fuente

University of Valladolid - Department of Financial Economics and Accounting

Abstract

This paper tests whether stock prices reflect investor's expectations regarding the value of real options. The analysis is implemented based on a sample of 391 high-tech companies listed on main OECD stock markets during the period December 1994 through December 2000. Results confirm the predicted relation between the fraction of a firm's market value not accounted for by its assets-in-place, and a series of variables that are assumed to disclose its real options value, variables such as research and development activity, risk and skewness of stock returns, and size. The results are robust even after controlling for valuation date, sub-industry, country, and alternative measures of risk.

Suggested Citation

Andrés, Pablo de and Azofra-Palenzuela, Valentin and de la Fuente-Herrero, Gabriel, The Real Options Component of Firm Market Value: The Case of the Technological Corporation. Journal of Business Finance & Accounting, Vol. 33, No. 1-2, pp. 203-219, January/March 2006, Available at SSRN: https://ssrn.com/abstract=886406 or http://dx.doi.org/10.1111/j.1468-5957.2006.00654.x

Pablo de Andrés (Contact Author)

Universidad Autonoma de Madrid ( email )

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Valentin Azofra-Palenzuela

University of Valladolid - Department of Finance and Accounting ( email )

Avda. Valle Esgueva 6
47011 Valladolid
Spain

Gabriel De la Fuente-Herrero

University of Valladolid - Department of Financial Economics and Accounting ( email )

Avda. Valle Esgueva 6
47011 Valladolid
Spain

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