Uncertainty, risk, and real options: who wins, who loses?

摘要

Purpose - Real-options have moved from being an academic theory to a decision-making tool that is rnbeing used by managers. The thinking underpinning real options has remained true to its financial rnoptions-pricing heritage, which means that it is based on an assumption of managerial risk-neutrality.rnManagers can be risk-seeking or risk-averse, depending on whether or not they are meeting rnperformance targets. This paper aims to explore the questions of what happens when the assumption rnof risk neutrality is relaxed and how the outcomes of managerial decisions on investments affect the rnfirm's stockholders and bondholders.rnDesign/methodology/approach - The work is conceptual in its approach. rnFindings - Managers, stockholders, or bondholders do not lose when managers are performing rnabove target and when environmental uncertainty is high, or below target when environmental rnuncertainty is low, but managers win at the expense of stockholders when they are meeting rnperformance targets and uncertainty is low, and managers win at the expense of bondholders when rnthey are performing below target and uncertainty is high.rnResearch limitations/implications - Propositions are provided for subsequent empirical testing.rnThe paper holds environmental complexity and munificence constant, but discusses the implication of rnthat in the conclusions.rnPractical implications - The research has implications for shareholders and bondholders. It also rnhas implications for Boards of Directors and the actions they take within their monitoring and control rnduties.rnOriginality/value - Because the paper is able to separate the constructs of uncertainty and risk, this rnis the first work that has been able to fully relax the assumption of risk neutrality that underpins rnreal-options theory.