Strategic implications of valuation methods

Author's OriginalStrategy is ultimately aimed at creating shareholder value, placing valuation in a central role linking finance and strategy. Focusing on growth options, this paper uses a unique "perfect information" model to examine, from a strategy point of view, the relationship between the market value of the firm and its intrinsic, or DCF, value. Although the research is at the level of the firm, the results have implications at the level of individual strategies and projects, since a firm can be conceptualized as a collection of projects. The findings highlight the relationship between the value of growth options and macroeconomic conditions, industry characteristics, and firm-specific factors. A revised version of this paper has since been published in the journal Advances in Strategic Management. Please use this version in your citations.Alessandri, T. M., Lander, D. M., & Bettis, R. A. (2007), Strategic Implications of Valuation: Evidence from Valuing Growth Options, in Professor Brian Silverman (ed.) Real Options Theory. Advances in Strategic Management, 24, 459-48

Investment in new foreign subsidiaries under receding perception of uncertainty

Research on foreign direct investment has focused considerable attention on the moment of market entry, but less on the dynamics of investment in the post-entry phase. This paper centres the influence of uncertainty on investment, and develops a growth options model to explain the sequence of investment in new foreign subsidiaries. In a learning process that starts at entry, investors perceive receding levels of uncertainty and shift their reason for investment from option values towards net present values. The findings of a panel study of 634 German subsidiaries support the propositions and reveal the potential of the real options approach to improve the understanding of internationalisation processes. Journal of International Business Studies (2008) 39, 370–386. doi:10.1057/palgrave.jibs.8400362