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Resources, real options, and corporate strategy

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  • Bernardo, Antonio
  • Chowdhry, Bhagwan

Abstract

The types of investments a firm undertakes will depend in part on what it expects the outcome of those investments to reveal about its skills, capabilities, and assets (i.e., its resources). We predict that a firm will specialize when young, then experiment in a new line of business for some time, and then either expand into a large, multisegment business or focus and scale up its specialized business. We derive several empirical implications for firm valuations and the reaction of stock prices to news about firm prospects. We also offer a novel explanation for the well-documented ‘‘diversification’’ discount.

Suggested Citation

  • Bernardo, Antonio & Chowdhry, Bhagwan, 1998. "Resources, real options, and corporate strategy," University of California at Los Angeles, Anderson Graduate School of Management qt2m96n2gw, Anderson Graduate School of Management, UCLA.
    • Handle: RePEc:cdl:anderf:qt2m96n2gw
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