scholarly journals Stock Return Volatility, Firm Real Option Value, And Mergers And Acquisitions Premiums

2021 ◽  
Author(s):  
Uyen (Wendy) Nguyen
Keyword(s):  
Mergers And Acquisitions ◽  
Real Options ◽  
Stock Return ◽  
Real Option ◽  
Return Volatility ◽  
Option Value ◽  
Leverage Ratio ◽  
Stock Return Volatility ◽  
Options Value ◽  
Real Option Value

Considerable effort has been devoted to indicate the critical determinants of acquisition premiums. However, the determinants of mergers and acquisitions (M&A) premiums are not yet fully understood. This research paper empirically examines the effect of stock return volatility on mergers and acquisitions premiums through real options value of bidder and target firms. With a sample of 2,559 completed M&A deals in the US during 1986-2016, we find that bidder firms tend to pay more premiums for the targets that have more future real option value and higher risk. To be more specific, when targets have more real options measured as high Research and Development (R&D) to market value, high sales growth rate, and low leverage ratio, the relationship between target return volatility and acquisition premiums is stronger. This study contributes not only to the literature regarding the determinants of mergers and acquisitions premiums but also to the literature of real options value. Keywords: Mergers and acquisition premiums, acquisition premiums, stock return volatility, real options, growth options

scholarly journals Stock Return Volatility, Firm Real Option Value, And Mergers And Acquisitions Premiums

2021 ◽  
Author(s):  
Uyen (Wendy) Nguyen
Keyword(s):  
Mergers And Acquisitions ◽  
Real Options ◽  
Stock Return ◽  
Real Option ◽  
Return Volatility ◽  
Option Value ◽  
Leverage Ratio ◽  
Stock Return Volatility ◽  
Options Value ◽  
Real Option Value

Considerable effort has been devoted to indicate the critical determinants of acquisition premiums. However, the determinants of mergers and acquisitions (M&A) premiums are not yet fully understood. This research paper empirically examines the effect of stock return volatility on mergers and acquisitions premiums through real options value of bidder and target firms. With a sample of 2,559 completed M&A deals in the US during 1986-2016, we find that bidder firms tend to pay more premiums for the targets that have more future real option value and higher risk. To be more specific, when targets have more real options measured as high Research and Development (R&D) to market value, high sales growth rate, and low leverage ratio, the relationship between target return volatility and acquisition premiums is stronger. This study contributes not only to the literature regarding the determinants of mergers and acquisitions premiums but also to the literature of real options value. Keywords: Mergers and acquisition premiums, acquisition premiums, stock return volatility, real options, growth options

scholarly journals A Real Options Approach to Valuate Solar Energy Investment with Public Authority Incentives: The Italian Case

Energies ◽  
2020 ◽  
Vol 13 (16) ◽  
pp. 4181
Author(s):  
Antonio Di Bari
Keyword(s):  
Solar Energy ◽  
Real Options ◽  
Real Option ◽  
Net Present Value ◽  
Option Value ◽  
Present Value ◽  
Energy Investment ◽  
The Real ◽  
Real Options Approach ◽  
Real Option Value

Solar energy investment represents currently a valid reason to support sustainable economic development. In fact, over the last few years, governments have applied different measures to incentivize private consumers and firms to use renewable energies. Photovoltaic (PV) projects are characterized by uncertainty due to meteorological conditions, the unpredictable behavior of government, and managerial flexibility. Since the Net Present Value (NPV) approach is not able to capture these uncertain factors, it was replaced with the Real Options Approach (ROA). The latter method manages to embed flexibility in PV investment using binomial trees. This paper valuates PV investment in all regional areas in Italy using an integrated approach between the discounted cash flows method and real option value, called Expanded Net Present Value (ENPV). We fit the probability of tax benefits into a binomial lattice model after analyzing the geographical position and weather conditions of all regional capitals of Italy. The results show that the cities with high irradiance/temperature have positive NPV and high investment values. On the other hand, while most cities have negative NPV, the inclusion of the flexibility in investment decisions gives additional value to the project, making the ENPV positive and implying an attractive investment opportunity with the possibility of delaying the project. We also propose a sensitivity analysis that shows how the real option value changes when incentive policies of the government become more attractive. This paper contributes to the existing literature in the way of considering financial, meteorological/geographical, and political factors to valuate PV investment.

Uncertainty, Absorptive Capacity, and Real Option Value of International Investment: An Examination of Prior Experience

2013 ◽  
Vol 14 (1) ◽  
pp. 71-86
Author(s):  
Sangcheol Song
Keyword(s):  
Real Options ◽  
Absorptive Capacity ◽  
Real Option ◽  
Prior Experience ◽  
International Investment ◽  
Moderating Effects ◽  
International Investments ◽  
Options Value ◽  
Real Option Value ◽  
High Uncertainty

Considering that experience develops a firm’s absorptive capacity, this paper examines the moderating effects of firms’ prior experience with high uncertainty and international investments on the real options value of subsequent and similar investments under uncertainty. In addition to the firm’s real option investments, we propose that consideration for a firm’s capability to perceive and respond to exogenous uncertainty and future opportunities would lead to a better understanding of the value of real options under uncertainty. Differential absorptive capacity based on prior experience with similar type of uncertainty and investment leads to heterogeneous value of subsequent uncertainty and investment.

The Value of Flexibility at Global Airlines: Real Options for EDW and CRM

2017 ◽  
pp. 1-18
Author(s):  
Mark Jeffery ◽  
Chris Rzymski ◽  
Sandeep Shah ◽  
Robert J. Sweeney
Keyword(s):  
Monte Carlo ◽  
Real Options ◽  
Real Option ◽  
Monte Carlo Analysis ◽  
Active Management ◽  
Growth Options ◽  
Option Value ◽  
Real Options Analysis ◽  
The Real ◽  
Real Option Value

Technology projects are inherently risky; research shows that large IT projects succeed as originally planned only 28 percent of the time. Building flexibility, or real options, into a project can help manage this risk. Furthermore, the management flexibility of options has value, as the downside risk is reduced and the upside is increased. The case is based upon real options analysis for an enterprise data warehouse (EDW) and analytic customer relationship management (CRM) program at a major U.S. firm. The firm has been disguised as Global Airlines for confidentiality reasons. The data mart consolidation or EDW marginally meets the hurdle rate for the firm as analyzed using a traditional net present value (NPV) analysis. However, different tactical deployment strategies help mitigate the risk of the project by building options into the project, and the traditional NPV is expanded by the real option value. Students analyze the different deployment strategies using a binomial model compound option Excel macro, and calculate the volatility using Monte Carlo analysis in Excel. A step-by-step tutorial is provided to teach students how to accomplish the real options analysis for a simplified project, and this tutorial is easily generalized by students to the case scenario. In addition to the tactical options, the case also has the strategic growth option of analytic CRM. Students must therefore analyze both the tactical and strategic growth options and make a management recommendation on funding the project and also recommend an optimal deployment strategy to manage the project risk.The case teaches real options for technology projects. Students learn how to calculate real option values, where the key input of volatility is obtained by Monte Carlo analysis in Excel. Students also learn that the real option value is “real,” resulting from active management mitigating the risk of the project and improving the upside. Most important, students understand the difference between tactical vs. strategic growth options and the important management issues to consider.

scholarly journals Opcje realne jako alternatywa w wycenie projektów inwestycyjnych

2017 ◽  
Vol 5 (2) ◽  
pp. 53-63
Author(s):  
Michał Gnap
Keyword(s):  
Real Options ◽  
Real Option ◽  
Net Present Value ◽  
Rate Of Return ◽  
Option Value ◽  
Internal Rate Of Return ◽  
Present Value ◽  
Standard Analysis ◽  
The Real ◽  
Real Option Value

The most important function of every company is to create value for its owners. In this concept, it is necessary to make actions both operating and investing. They are targeted to increase economical value in the future. Very popular in this age net present value and internal rate of return, even though very popular, they face absolute tool. Every limitation which is typical for those methods, lead to situations where management must take decisions intuitively. So standard analysis NPV should be expanded by additional tools like the real option. The aim of this work is not to characterize approaches used for estimation of real option value, but to show how seemingly unprofitable investments can be profitable due to feature real options which can bring to company over-proportional profit.

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