Real Options in Multinational Decision-Making : Managerial Awareness and Risk Implications

This paper is an empirical contribution to the theory of real options in the area of multinational business. It addresses the theme of real options decision-making in multinational corporations (MNCs) and stresses the role of real options attention and managerial learning in company performance. Using a global sample of 278 large multinational corporations with categorised degrees of managerial real options awareness, we examine the risk implications of switching options in multinational operations, and explore the extent to which the real options logic can be classified as “best practice” in decision-making and risk management. Our statistical results reveal that firms which have shown a high managerial awareness about their real options are, as predicted by the theory, able to reduce their downside risk through multinationality, organisational slack and other firm characteristics. This finding does not apply fully to firms without evidence of such an awareness. Also, although real options awareness does not systematically guarantee lower downside risk from operations, supplementary results indicate that firms with evidence of significant investment in the acquisition of real options knowledge tend to outperform competitors that are unaware of their real options. This suggests that if real options are explored and exploited appropriately, real options decision-making can result into superior performance for multinational organisations in the long-term