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Growth Options (growth + option)
Terms modified by Growth Options Selected AbstractsThe Impact of Fundamentals on IPO ValuationFINANCIAL MANAGEMENT, Issue 2 2009Rajesh Aggarwal We examine how initial public offering (IPO) valuation has changed over time by focusing on three time periods: 1986-1990, January 1997 to March 2000 (designated as the boom period), and April 2000 to December 2001 (designated as the crash period). Using a sample of 1,655 IPOs, we find that firms with more negative earnings have higher valuations than do firms with less negative earnings and firms with more positive earnings have higher valuations than firms with less positive earnings. Our results suggest that negative earnings are a proxy for growth opportunities for Internet firms and that such growth options are a significant component of IPO firm value. [source] Corporate investments and growth optionsMANAGERIAL AND DECISION ECONOMICS, Issue 8 2007Jeffrey J. Reuer Real options theory models certain corporate investments as investments in growth options, yet there is little direct evidence on whether firms actually capture growth option value from these investments. In the current paper, we attempt to bridge this empirical gap, and we also examine the conditions under which the growth option value embedded in such investments is enhanced. Results from a sample of manufacturing firms during 1989,2000 reveal that investments in research and development and joint venture (JV) investments contribute to firms' growth option values. We also show that, among JVs of different ownership structures, only minority JVs increase growth option value. Our findings affirm options theory's assertion that real options can help firms capture valuable upside opportunities, they highlight the value of examining contingencies that drive option value, and they also point to the challenges firms face in realizing the unique benefits the theory emphasizes. Copyright © 2007 John Wiley & Sons, Ltd. [source] Sustaining economic expansion in Pakistan in an era of energy shortfalls: growth options to 20351OPEC ENERGY REVIEW, Issue 2 2007Robert Looney Pakistan's recent economic acceleration together with rapid rates of population growth is having a significant impact on the country's energy supply/demand balances. Energy supplies in turn affect the pace and pattern of the country's economic expansion. Drawing on the empirically-based complex links between energy and the economy, several alternative scenarios of growth and energy needs are developed in an attempt to answer several key questions. In particular, what are some of the key interrelationships between sources of energy demand and supply? What are the economic growth consequences of alternative energy availabilities and, in turn, how do these growth patterns affect the subsequent energy supply and demand patterns? What energy strategies are suggested by the interconnection between the country growth requirements and energy needs? Are these significantly modified under rising or falling energy prices? Based on this analysis, several guidelines are drawn for the country's future energy policy. [source] Real Options, Product Market Competition, and Asset ReturnsTHE JOURNAL OF FINANCE, Issue 2 2009FELIPE L. AGUERREVERE ABSTRACT We study how competition in the product market affects the link between firms' real investment decisions and their asset return dynamics. In our model, assets in place and growth options have different sensitivities to market wide uncertainty. The strategic behavior of market participants influences the relative importance of these components of firm value. We show that the relationship between the degree of competition and assets' expected rates of return varies with product market demand. When demand is low, firms in more competitive industries earn higher returns, whereas when demand is high firms in more concentrated industries earn higher returns. [source] Corporate Investment and Asset Price Dynamics: Implications for SEO Event Studies and Long-Run PerformanceTHE JOURNAL OF FINANCE, Issue 3 2006MURRAY CARLSON ABSTRACT We present a rational theory of SEOs that explains a pre-issuance price run-up, a negative announcement effect, and long-run post-issuance underperformance. When SEOs finance investment in a real options framework, expected returns decrease endogenously because growth options are converted into assets in place. Regardless of their risk, the new assets are less risky than the options they replace. Although both size and book-to-market effects are present, standard matching procedures fail to fully capture the dynamics of risk and expected return. We calibrate the model and show that it closely matches the primary features of SEO return dynamics. [source] How Big Are the Tax Benefits of Debt?THE JOURNAL OF FINANCE, Issue 5 2000John R. Graham I integrate under firm-specific benefit functions to estimate that the capitalized tax benefit of debt equals 9.7 percent of firm value (or as low as 4.3 percent, net of personal taxes). The typical firm could double tax benefits by issuing debt until the marginal tax benefit begins to decline. I infer how aggressively a firm uses debt by observing the shape of its tax benefit function. Paradoxically, large, liquid, profitable firms with low expected distress costs use debt conservatively. Product market factors, growth options, low asset collateral, and planning for future expenditures lead to conservative debt usage. Conservative debt policy is persistent. [source] UNDERSTANDING SIZE AND THE BOOK-TO-MARKET RATIO: AN EMPIRICAL EXPLORATION OF BERK'S CRITIQUETHE JOURNAL OF FINANCIAL RESEARCH, Issue 4 2005Xinting Fan Abstract Because they are scaled by price, the ability of size (i.e., the market capitalization of a firm) and the book-to-market equity ratio to determine expected returns may, according to Berk (1995), reflect only a simultaneity bias. The two-stage least squares approach is used to control for this bias and to investigate the economic meanings of these variables. We discover that size and the book-to-market ratio contain distinct and significant components of financial distress, growth options, the momentum effect, liquidity, and firm characteristics. Our findings support Berk in his contention that that size and the book-to-market ratio reflect a combination of different economic mechanisms that are misspecified in the expected return process. [source] Organizing for Radical Innovation: An Exploratory Study of the Structural Aspects of RI Management Systems in Large Established FirmsTHE JOURNAL OF PRODUCT INNOVATION MANAGEMENT, Issue 6 2006Gina Colarelli O'Connor To escape the intense competition of today's global economy, large established organizations seek growth options beyond conventional new product development that leads to incremental changes in current product lines. Radical innovation (RI) is one such pathway, which results in organically driven growth through the creation of whole new lines of business that bring new to the world performance features to the market and may result in the creation of entirely new markets. Yet success is elusive, as many have experienced and scholars have documented. This article reports results of a three-year, longitudinal study of 12 large established firms that have declared a strategic intent to evolve their RI capabilities. In contrast to other academic research that has analyzed specific projects to understand management practices appropriate for RI, the present research reported explores the evolution of management systems for enabling radical innovation to occur repeatedly in large firms and reports on one aspect of this management system: organizational structures for enabling and nurturing RI. To consider organizational structure as a venue for capability development is new in the management of innovation and dynamic capabilities literatures. Conventional wisdom holds that RIs should be incubated outside the company and assimilated once they have gained traction in the marketplace. Numerous experiments with organizational structures were observed that instead work to manage the interfaces between the RI management system and the mother organization. These structures are described here, and insights are drawn out regarding radical innovation competency requirements, transition challenges, senior leadership mandates, and business-unit ambidexterity. The centerpiece of this research is the explication of the Discovery,Incubation,Acceleration framework, which details three sets of necessary, though not sufficient competencies, for building an RI capability. [source] The Use of Performance-based Remuneration: High versus Low-growth FirmsAUSTRALIAN ACCOUNTING REVIEW, Issue 3 2010Julie Walker This study analyses the CEO remuneration structure and level for 100 Australian-listed entities. Consistent with expectations, it finds that high-growth firms pay their CEOs a greater proportion of performance-based pay, when equity-based rewards only are considered. High-growth firms also place greater reliance on market and/or non-financial performance standards for the award of performance-based pay. The extent to which performance-based remuneration is used as a component of CEO pay is positively associated with firm size and growth options. Other potential determinants of performance-based pay, such as financial performance, are not significantly associated with the use of performance-based remuneration. [source] | ||||||||||||||||||||||