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Real options in divestment alternatives
Author(s) -
Damaraju Naga Lakshmi,
Barney Jay B.,
Makhija Anil K.
Publication year - 2015
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.2243
Subject(s) - divestment , strategic business unit , corporate governance , context (archaeology) , unit (ring theory) , business , value (mathematics) , industrial organization , economics , computer science , finance , marketing , mathematics , biology , paleontology , mathematics education , machine learning
This paper examines the implications of real options theory for both the decision to divest a business unit and the mode of divestment. It is shown that the decision to divest a business unit and the decision to engage in staged modes of divestment are both sensitive to uncertainty, consistent with a real options logic. However, in the face of uncertainty, the results suggest that staged forms of governance create real options that are of lesser value as compared to simply not divesting a business unit and also as compared to completely divesting a business unit. Thus, this study shows that firms have real options of varied value to choose from in the context of divestments . Copyright © 2014 John Wiley & Sons, Ltd.