An Empirical Analysis of Growth Options of Japanese Electronics Firms

Abstract

This paper provides some empirical support of real option models of corporate flexibility based on the analysis of the panel of Japanese electronics firms covering fiscal years 1999–2008. I apply random effect regression techniques and explain market value of firms’ growth options using several uncertainty proxies and firm-specific variables. Important contribution of the current study lies in empirical examining of the critical parameters of real option analysis of determinants of a firm’s investment behavior based on simple but effective structural model of multiple American-type options.