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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

Suggested Citation

  • Henri Philippe, 2005. "Corporate Governance: A New Limit to Real Options Valuation?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 9(2), pages 129-149, June.
  • Handle: RePEc:kap:jmgtgv:v:9:y:2005:i:2:p:129-149
    DOI: 10.1007/s10997-005-4028-7
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    File URL: http://hdl.handle.net/10.1007/s10997-005-4028-7
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    References listed on IDEAS

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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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    Cited by:

    1. Ahlers, Oliver & Hack, Andreas & Kellermanns, Franz W., 2014. "“Stepping into the buyers’ shoes”: Looking at the value of family firms through the eyes of private equity investors," Journal of Family Business Strategy, Elsevier, vol. 5(4), pages 384-396.

    More about this item

    Keywords

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

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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