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Corporate Governance: A New Limit to Real Options Valuation?

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  • Henri Philippe

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    Abstract

    Including real options in firms ’ value raises numerous difficulties. Limitations concerning the relevance of option pricing models outside financial markets are the most salient, but carrying out a valuation implies other assumptions, especially on firms’ governance. In particular, assessing whether a real option should be included within a firm’s boundaries and how its value should be shared, is difficult. Most of these issues result from the different property rights on real options: who creates and who can exercise the option? We discuss existing answers to these difficulties and propose a matrix based on property rights to help practitioners decide whether a real option can be valued appropriately or not by real options models. We support our discussion with a case study based on an R&D firm valuation. Copyright Springer 2005

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    File URL: http://hdl.handle.net/10.1007/s10997-005-4028-7
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    Bibliographic Info

    Article provided by Springer in its journal Journal of Management & Governance.

    Volume (Year): 9 (2005)
    Issue (Month): 2 (06)
    Pages: 129-149

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    Handle: RePEc:kap:jmgtgv:v:9:y:2005:i:2:p:129-149

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    Web page: http://www.springerlink.com/link.asp?id=102940

    Related research

    Keywords: Case studies; corporate governance; corporate valuation; R&D; Real options; theory of the firm; D23; D81; G34; L22; O32;

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    1. José Pablo Dapena, 2002. "On the property of real options and the assets that give rise to them," CEMA Working Papers: Serie Documentos de Trabajo. 210, Universidad del CEMA.
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