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Real Option Exercise: Empirical Evidence

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  • Paul Décaire
  • Erik P. Gilje
  • Jérôme P. Taillard

Abstract

We study when and why firms exercise real options. Using detailed project-level investment data, we find that the likelihood that a firm exercises a real option is strongly related to peer exercise behavior. Peer exercise decisions are as important in explaining exercise behavior as variables commonly associated with standard real option theories, such as volatility. We identify peer effects using localized exogenous variation in peer project exercise decisions and find evidence consistent with information externalities being important for exercise behavior.

Suggested Citation

  • Paul Décaire & Erik P. Gilje & Jérôme P. Taillard, 2019. "Real Option Exercise: Empirical Evidence," NBER Working Papers 25624, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:25624
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    References listed on IDEAS

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    Cited by:

    1. M. Cecilia Bustamante & Laurent Frésard, 2021. "Does Firm Investment Respond to Peers’ Investment?," Management Science, INFORMS, vol. 67(8), pages 4703-4724, August.
    2. Adam Bordeman & Bharadwaj Kannan & Roberto Pinheiro, 2021. "Rival Growth Prospects and Equity Prices: Evidence from Mass Layoff Announcements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(8), pages 1969-1997, December.

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    More about this item

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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