Competition and the Bad News Principle in a Real Options Framework

We study the investment timing problem where two firms that compete for investment preemption know in advance the time at which the economic condition changes. We show that the so-called Bad News Principle applies to the leader firm’s investment decision near maturity in many cases. This result indicates that the option value to wait does have an impact even in a competitive situation, which is in contrast to the previous literature.

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Year of publication:	2013-04
Authors:	Nishide, Katsumasa ; Yagi, Kyoko
Institutions:	Institute of Economic Research, Kyoto University
Subject:	Bad news principle \| investment timing \| competition \| real options

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Extent:	application/pdf
Series:	KIER Working Papers.
Type of publication:	Book / Working Paper
Notes:	Number 860
Classification:	D92 - Intertemporal Firm Choice and Growth, Investment, or Financing ; G32 - Financing Policy; Capital and Ownership Structure ; D43 - Oligopoly and Other Forms of Market Imperfection
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010860067