Exercising a firm’s growth options: A portfolio approach

•The hedging potential of GO from prior explorative investments.•The portfolio of businesses as a basis of analysis for the decision to exercise GO.•A firm’s level of diversification deters GO exercise.•The average volatility of a firm’s current businesses discourages GO exercise.•Relatedness and ri...

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Veröffentlicht in:Journal of business research Jg. 132; S. 571 - 585
Hauptverfasser: Andrés, Pablo de, Fuente, Gabriel de la, Velasco, Pilar
Format: Journal Article
Sprache:Englisch
Veröffentlicht: Elsevier Inc 01.08.2021
Elsevier B.V
Schlagworte:
Hedging (Finance)
Investment strategy
Opportunity exploitation
Options (Finance)
Options exercise
Portfolio of businesses
Real options
Portfolio of businesses
D22
Opportunity exploitation
G32
C25
Investment strategy
Real options
Options exercise
L25
ISSN:0148-2963
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Zusammenfassung:•The hedging potential of GO from prior explorative investments.•The portfolio of businesses as a basis of analysis for the decision to exercise GO.•A firm’s level of diversification deters GO exercise.•The average volatility of a firm’s current businesses discourages GO exercise.•Relatedness and rivalry in its core business trigger GO exercise. This paper investigates a firm’s decision to exercise its growth options within the current scope of business. We contend that the point at which a firm chooses whether or not to exercise such options depends on several strategic characteristics associated to its portfolio of businesses (i.e. level of diversification, average volatility of its current business, relatedness among them, and rivalry in its core business). Using a sample of U.S. companies from 1998 to 2013, we find evidence that a firm’s level of diversification and the volatility of its current business deter immediate growth option exercise. In contrast, relatedness and rivalry in its core business trigger growth options exercise. Our portfolio perspective differs from the bulk of the literature on real options, which evaluates each growth option exercise in isolation, and contributes to furthering knowledge on the drivers underlying a diversified firm's strategic investments.
ISSN:0148-2963
DOI:10.1016/j.jbusres.2021.04.074