Real Options as Engines of Choice and Heterogeneity

By Rita Gunther McGrath, Walter J. Ferrier, A. L. Mendelow. 2004

321 citations recorded by the source corpus.

Four characterizations of options exist: (1) as a component of total firm value, (2) as specific projects, (3) as choices, and (4) as a heuristic for strategic investment. Option value exists when two conditions apply: future choices and potential for proprietary access to outcomes. Narrower boundary conditions are inconsistent with theory and incomplete for application. The option lens has promise for its power to shed economic insight into behavioral processes.

Subfields: Economics and Econometrics, Finance, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/ef129e34ebb60c27bdcb4e58375e1140cc271f2f

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Citations in the corpus

International Joint Ventures and the Value of Growth Options (2008, background): “Our approach can be used in a variety of settings to examine the unique benefits real options theory claims for firms; namely, that real options investments help firms enhance upside opportunities while limiting downside risk (McGrath, 1997; McGrath et al., 2004).”
Real Options Logic Revisited: The Performance Effects of Alternative Resource Allocation Regimes (2015, background): “This extends the debate on the usefulness of options perspectives (Adner & Levinthal, 2004b, 2004a; Barnett, 2008; Guler, 2007; Klingebiel, 2012; Kogut & Kulatilaka, 2004; McGrath et al., 2004; Tong & Reuer, 2007).”
Real Options Pricing and Organizations: The Contingent Risks of Extended Theoretical Domains (2004, background): “In an article on corporate invest ments, Stewart Myers (1977) perceptively noted that this insight could be applied more broadly to the valuation of corporate and project invest ments.”
Real Options in Management and Organizational Strategy: A Review of Decision‐making and Performance Implications (2012, unknown): “Management literature studies the real options theme under several perspectives depending on the utility of the methodology within organisational and behavioural boundaries (McGrath et al. 2004; Miller and Arikan 2004; Tong et al. 2008a).”
Sunk Costs, Uncertainty and Market Exit: A Real Options Perspective (2009, background): “However, we also concur with the retort that this framework may nonetheless provide useful insights into the economic logic of real behavior processes (McGrath et al., 2004).”
Real Options in International Joint Ventures (2005, result): “More recent research has provided broader evidence that MNCs tend to avoid investing in host countries with greater political hazards (Henisz & Delios, 2001) and that when MNCs do invest in these countries, they tend to maintain lower equity stakes (Delios & Henisz, 2000). This investment strategy i”
Market frictions as building blocks of an organizational economics approach to strategic management (2013, background): “The real options lens attempts to account for these spillover effects within the constructs of real options to defer, abandon, or grow (Dixit and Pindyck, 1994), which can create value by generating future decision rights (McGrath, Ferrier, and Mendelow, 2004).”
Dynamic Creation: Extending the Radical Austrian Approach to Entrepreneurship (2010, background): “…forward-looking entrepreneurs introduce heterogeneous resources into an organization, scholars may wish to explore real options reasoning, which addresses costly investments in heterogeneous resources made incrementally during times of significant uncertainty (McGrath 1997; McGrath et al. 2004).”
Real Options and IT Platform Adoption: Implications for Theory and Practice (2004, background): “As McGrath et al. note, “The options lens embeds a logic for antic-ipating whether [ﬁrm behavior] makes economic sense or not” (2004, p. 98).”