Real Options in Sequential Stock Acquisitions

My dissertation seeks to address ambiguities in the common usage of real options as thecounterpart of financial options in management, focusing on a specific management context:sequential acquisitions of equity stock. Despite its popularity, the metaphoric use of real optionson sequential acquisitions brings up critical ambiguities, which might not be congruent withassumptions in the finance options literature. I seek to examine such ambiguities and align themwith the theory and practice of strategic management. The dissertation is structured as follows:In Essay 1, I first identify key ambiguities in the metaphoric use of real options as a reflection offinance options in several management contexts, and then focus on addressing two keyambiguities in equity partnerships. Further, I provide the baseline framework to address theambiguities, leading to the view of dual latent options - dual partner roles. Finally, I proposethree future research questions worth examining. In Essay 2, I address one of the three questionssuggested in Essay 1: what conditions enable a particular equity partner in an internationalequity partnership, to exercise its call by acquisition (exercise its put option by divestment) uponfavorable (unfavorable) market shock? Suggesting that the organizational capability to perceiveexternal environments serves as an important contingency, I argue that the partner who can moresignificantly reduce its perceptual uncertainty will exercise an option aligned with the directionof the market shock. By extending this logic to international equity partnerships, I hypothesizeabout how a foreign partners equity purchase (which coincides with local partners equitydivestment) is influenced by environment shocks. I conduct a regression analysis with alongitudinal dataset of international equity partnerships in the automotive component industry,and obtain results supportive of the hypotheses. In conclusion, my dissertation contributes tonudging the real options view from its current form, which is the largely metaphoric use offinance options, toward a management theory that is more consistent with the realities ofstrategic management.