Real Option Exercise: Empirical Evidence
NBER Working Paper No. 25624
We study when and why firms exercise real options. Using detailed project-level investment data, we find that the likelihood that a firm exercises a real option is strongly related to peer exercise behavior. Peer exercise decisions are as important in explaining exercise behavior as variables commonly associated with standard real option theories, such as volatility. We identify peer effects using localized exogenous variation in peer project exercise decisions and find evidence consistent with information externalities being important for exercise behavior.
Document Object Identifier (DOI): 10.3386/w25624
Published: Paul H Décaire & Erik P Gilje & Jérôme P Taillard & Stijn Van Nieuwerburgh, 2020. "Real Option Exercise: Empirical Evidence," The Review of Financial Studies, vol 33(7), pages 3250-3306.