. Неопределённость и экономическая активность: теоретические аспекты

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Managerial Flexibility, Uncertainty, and Corporate Investment: The Real Options Effect

The purpose of the paper is to understand the role that uncertainty plays in determining the effect of R&D and advertising expenditures on market values. Real option literatures indicate that the investment on R&D or advertising can be viewed as purchase of growth options for firms. The cost of the investment is interpreted as the premium of the option. The growth option will be exercised only under favorable market outcome and thus has non-linear payoffs. Because of the convexity of the growth option, the value of the option increases with uncertainty in the market that a firm faces. In other words, the capitalization of R&D and advertising expenditures will be larger if there is higher uncertainty in the product market.The role uncertainty plays in determining the valuation of R&D and advertising expenditures is explored using different sets of sample through regression analysis and robust OLS estimation. Empirical evidences indicate that firms facing more uncertainty in the market tend to invest more in R&D projects but not in advertising expenditure. Managers realize growth option features of R&D projects and make more investments to capture the benefit of uncertainty for the value of R&D projects. The option analogy for R&D investment may well explain high P/E ratios for high-tech or start-up firms, which have large R&D investments and face higher uncertainty. On the other hand, it seems that uncertainty does not play an important role in determining the effect of advertising expenditure on market value, which means that investors may not view advertising investments as a growth options. Finally, findings in event study indicate that the abnormal returns over the announcements of new R&D projects increase when there is larger uncertainty in the market. This again confirms the conjecture that R&D investment is considered as purchase of a growth option and therefore the value of the investment is positive correlated to volatility.

Increasing information technology (IT) infrastructure spending and the capability of such projects to provide a platform for a firm to realize value from IT marks their importance. Effective management of IT infrastructure investments includes identification of embedded growth options in the infrastructure, and exercising them in a timely manner. Extant research has recognized that while managers could use real options thinking in IT investment management, managerial bias could affect the timing of option exercise and their realized value. We analyze the effect of time-inconsistent preferences of present-biased managers on the exercise time of real growth options and the realized value using a discrete time option valuation model. The results show that present-biased managers are more likely to exercise options early when the net payoffs are low, the option payoffs have high volatility, and the risk free discount rate is small. In addition, present biased managers are more likely to exercise a growth option early in its life when the project is performing well. We provide implications for practice and IT governance.

Market Versus Managerial Valuations of Real Options

This PhD dissertation analyses the relationship between corporate diversification and firm value from the real options (RO) approach. The diversification-value linkage has inspired abundant research, with outstanding contributions especially from the fields of strategic management and finance. However, the controversy surrounding the issue does not seem to have dissipated, and the question of whether corporate diversification creates or destroys value for firms remains open. In this dissertation, we argue that the impact of diversification is contingent on the firm?s growth opportunities, which are considered by the RO theory as an important source of value for firms. Our research adopts an options-based perspective, from which diversification appears as a path-dependent strategy based on the serial purchase and exercise of call options. This dissertation contributes to extending the applicability of the real options approach to strategy, and suggests the relevance of incorporating a multidimensional view and contingent analysis in the diversification debate. The theoretical body of this dissertation is structured in two chapters. Chapter 1 contains the review of the literature on corporate diversification, with special emphasis on the empirical evidence concerning the diversification-value relation. In Chapter 2, we introduce the RO approach and its main applications to the analysis of corporate strategies, as well as our model and study hypotheses to test in the three subsequent chapters. This dissertation consists of three empirical studies, based on a panel sample of U.S. firms from 1998 to 2010 and the use of econometric techniques to control for the endogeneity of the diversification decision. In Chapter 3, we investigate whether firm?s growth options can explain the influence of diversification on firm value. We find that, at lower levels of diversification, this corporate strategy mainly involves exercising previously acquired investment opportunities, whereas in subsequent stages it primarily becomes a source of growth options (U-form relationship). Our results also reveal a partial mediating role of growth opportunities in the diversification-value relationship. This strategy proves value-creating by enhancing the firm?s growth options (indirect effect) stemming from the interplay of multiple businesses and thus cannot be replicated by individual investors in external capital markets. In Chapter 4, we test whether the value effect of diversification depends on ?how? this strategy is implemented. We consider two diversification strategies: one based on one-step investments, exercising available options immediately (an assets-in-place diversification), and another aimed at constantly building new growth options in subsequent businesses through low-scale investments (options-based diversification). We develop an index to proxy for these diversification patterns and we find that as diversification approaches a real options pattern, it proves more beneficial in terms of value creation. The final empirical study is offered in Chapter 5. Here, we examine how corporate diversification interacts with the firm?s growth options portfolio. We focus on two dimensions of this strategy: degree of diversification and relatedness between segments. First, we find an inverted U-shaped relation between relatedness and the firm?s growth options ratio. Results also indicate that this relationship is less pronounced in high than low diversifiers. Additionally, we show that risk of preemption negatively moderates the U-form relation between degree of diversification and growth opportunities documented in Chapter 3. In short, this dissertation shows the relevance of growth opportunities in the value effect of corporate diversification. Insofar as the growth opportunities which this strategy can give access to are not replicable by individual investors, corporate diversification becomes an efficient and therefore, value-creating strategy. For management practice, this dissertation reveals how important the way strategies are implemented may prove for value creation.

I am interested in clarifying the discussion of how researchers might try to isolate real option effects to identify whether managerial decisions are guided by a real option heuristic. If we are to claim that the theory of real options illuminates managerial behavior, then as a field, we must converge on an understanding as to what constitutes a real option effect, and what does not. The discussion centers on hypothesis development, measurement issues, and research methodology.

Investment under market and climate policy uncertainty

Real options and the value of oil and gas firms: An empirical analysis

In this paper we propose a conceptual framework for continuous-time valuation of real (investment) options in the presence of costly controls with random outcomes (learning), that affect the value of the underlying asset or a relevant state-variable. These controls represent optional efforts by management to add value to the underlying real investments over which it has monopoly power, albeit with uncertain results. Special cases of such controls include pure learning (but costly) actions, as in many research and development, marketing research or natural resource exploration projects. We demonstrate a discrete-time Markov-chain solution methodology implemented in a finite-difference scheme, and we discuss numerical results. The impact of such uncertain jumps is seen to be relatively more significant in the case of non-profitable options than in the case of very profitable real (investment) options. When the potential for information revelation is significant, we are even willing to pay for an action with a negative expected outcome. With numerical simulations we capture the value of embedded exploration (pure learning) options and we demonstrate the improvement over the traditional (sequential/compound) real options approach. We show that such exploration options enhance the value of investment opportunities in the most significant manner, and justify the (mostly unexplained) observed practice of “overpaying” for the purchase of rights to natural resources extraction.

This paper studies a production network model with quantity rigidities and informational frictions, where (i) firms may be restricted in how effectively they can adjust (some or all of) their intermediate input quantities in response to changes in the economic environment and (ii) they need to choose their quantities under incomplete information about the realizations of shocks. Our characterization results show that these two frictions lead to a reduction in aggregate output, as firms may find it optimal to rely more heavily on less volatile suppliers, even if it comes at the cost of forgoing more efficient ones. We also find that the interaction between informational frictions and quantity rigidities dampens the impact of productivity and aggregate demand shocks on aggregate output, while increasing the inflationary effects of positive shocks to nominal aggregate demand. The magnitudes of these effects depend on the distribution of the two frictions over the production network.

Research Summary While real options theory has been applied with the optimality assumption, actual real options investments are made by managers, who are subject to cognitive biases, especially under uncertainty. In this article, we focus on one important type of cognitive bias, overconfidence, to provide new insights on real options literature. We argue that overconfident CEOs will invest less in real options than non‐overconfident CEOs. We also predict that the relationship between overconfident CEOs and firms' real options intensity will be strengthened when market uncertainty is higher. In a study of U.S. public firms, we find strong support across various tests that use multiple measures of overconfidence in CEOs and real options investments, and control for potential selection issues and other endogeneity concerns. Managerial Summary This article studies how a CEO's cognitive bias, overconfidence, may shape a firm's real option investments, which could result in a different level of strategic flexibility. We argue that overconfident CEOs have overly high expectations of their performance under uncertainty and/or underestimate the level of uncertainty in their strategic decision‐making, which leads to lower investments in the firms' real options relative to non‐overconfident CEOs. We study a sample of U.S. public firms and find strong evidence that an overconfident CEO is positively related to the real options investments at the firm level. We also find that this overconfidence effect becomes more pronounced in markets with greater uncertainty.

Research Summary: Combining studies on real options theory and economic short‐termism, we propose that, depending on CEOs’ career horizons, CEOs have heterogeneous interests in strategic flexibility, and thus, have different incentives to make real options investments. We argue that compared to CEOs with longer career horizons, CEOs with shorter career horizons will be less inclined to make real options investments because they may not fully reap the rewards during their tenure. In addition, we argue that long‐term incentives and institutional ownership will mitigate the relationship between CEOs’ career horizons and real options investments. U.S. public firms as an empirical setting produced consistent evidence for our predictions. Our study is the first to theoretically explain and empirically show that a CEO's self‐seeking behavior will impact real options investments. Managerial Summary: This article helps to explain how a CEO's self seeking‐behavior may shape a firm's real option investment, which could result in different level of strategic flexibility. We argue that CEOs with short career horizons have less time to exercise their firms’ real options, which should lower the investments in the firms’ real options portfolios relative to CEOs with long career horizons. We study a sample of U.S. public firms and find strong evidence that a CEO's expected tenure in the firm is positively related to the real options investments at the firm level. We find that this agency issue can be mitigated by adopting appropriate corporate governance mechanisms such as long‐term incentives and institutional investors.

This paper presents estimates of the short-run aggregate supply and demand curves for the post-war U.S. economy using a structural vector autoregression (SVAR). Following the work of Blanchard and Quah [4] (henceforth BQ) I assume that aggregate demand shocks have no long-run impact on the log of real output. In contrast to BQ I use aggregate output and prices while they use aggregate output and the unemployment rate. By replacing unemployment with prices I can estimate the slopes of the aggregate supply and demand curves for the U.S. economy. My purpose in extending the work of BQ in this direction is threefold. First, to investigate whether the decomposition method proposed by BQ yields textbook aggregate demand and supply curves; second, to investigate whether the supply and demand shocks derived from this method correspond to historical demand and supply shocks; and third, to test the stability of the slope of the aggregate supply curve. The once-well-accepted stylized characterization of prices as procyclical has recently been questioned (Kydland and Prescott [13] and Wolf [23]). Procyclical prices were previously thought to be evidence that the cycle was aggregate demand driven. The studies by Kydland and Prescott and Wolf show that prices are either acyclical or countercyclical thus indicating that aggregate supply shocks may play a role in business cycle fluctuations. In this paper I test whether, once output movements and prices are decomposed into demand and supply driven components, the aggregate demand induced movements in prices are procyclical and the aggregate supply induced movements in prices are countercyclical. I find that the aggregate supply curve does slope upward and the aggregate demand curve does slope downward. Thus, the evidence presented here is consistent with the notion that the lack of a consistent cyclical pattern in the price level is due to the fact that both demand and supply shocks generate business cycle fluctuations. Secondly, I extend BQ by investigating whether the movements in output and prices due to aggregate demand and supply shocks correspond to specific episodes of demand and supply shocks during the post-war era as defined by independent sources. For example, does this estimation technique attribute movements in output due to oil price shocks to aggregate supply and

Uncertainty, Credit and Investment: Evidence from Firm-Bank Matched Data