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Optimal corporate strategy under uncertainty

Author

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  • Andrew H. Chen
  • Frank J. Fabozzi
  • Dashan Huang

Abstract

Within a dynamic setting, optimal corporate strategy management for a multi-division corporation involves restructuring a portfolio of Strategic Business Units (SBUs) periodically so as to maximize the firm's market value. Real option theory has been applied to model and explain managerial flexibility for both project selection and operational decisions. In general, optimal corporate strategy has focused on strategic environments and characteristics of business units rather than on managerial flexibility. In this article, we develop a feasible discrete-time model for optimal corporate strategy that incorporates both endogenous and exogenous factors and is consistent with the value-based criterion for maximizing shareholders’ wealth.

Suggested Citation

  • Andrew H. Chen & Frank J. Fabozzi & Dashan Huang, 2013. "Optimal corporate strategy under uncertainty," Applied Economics, Taylor & Francis Journals, vol. 45(20), pages 2877-2882, July.
    • Handle: RePEc:taf:applec:v:45:y:2013:i:20:p:2877-2882
    DOI: 10.1080/00036846.2012.684791
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    References listed on IDEAS

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    1. Grenadier, Steven R., 1995. "Valuing lease contracts A real-options approach," Journal of Financial Economics, Elsevier, vol. 38(3), pages 297-331, July.
    2. J. Tobin, 1958. "Liquidity Preference as Behavior Towards Risk," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 25(2), pages 65-86.
    3. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-887, September.
    4. Han T. J. Smit & L. A. Ankum, 1993. "A Real Options and Game-Theoretic Approach to," Financial Management, Financial Management Association, vol. 22(3), Fall.
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    Cited by:

    1. Staneiu Roxana-Maria, 2022. "Psychological Safety as a catalyst for Knowledge Sharing," Proceedings of the International Conference on Business Excellence, Sciendo, vol. 16(1), pages 98-108, August.

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