Managers' Incorporation of the Value of Real Options into Their Long-Term Investment Decisions: An Experimental Investigation*

• 成果类型: Article
• 署名作者: Denison, Christine A.; Farrell, Anne M.; Jackson, Kevin E.
• 署名单位: Iowa State University; University System of Ohio; Miami University; University of Illinois System; University of Illinois Urbana-Champaign
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/j.1911-3846.2011.01116.x
• 发表日期: 2012
• 页码: 590-+
• 关键词: Bounded rationality; INFORMATION; valuation; escalation; RISK

摘要

While academic and practitioner literature has advocated the use of real options in firms' long-term investment appraisal processes, few studies have examined the extent to which real options are incorporated into decisions when they are available for decision making. Using two experiments, we examine supervising managers' reliance on real options values in judgments about funding subordinates' long-term investment projects. We predict and find with Experiment 1 that, when making funding decisions, supervising managers rely less on the value of real options than on the value of projects' planned implementation paths, and we identify factors that impact this differential reliance. We predict and find with Experiment 2 that, holding information constant, a simple reporting change influences supervisors' reliance on real options in their funding decisions: they rely more on real options values when they are aggregated with ( rather than displayed separately from) the values of projects' planned implementation paths in a financial summary of subordinates' proposals. We show that the financial summary affects decisions via perceptions of the relative accuracy of the planned path and real options components of value and that this in turn affects the weights placed on each component. We contribute to the real options literature by providing evidence of supervisors' reliance on real options values in judgments and to the accounting literature by providing evidence that accounting reports can affect perceptions of the underlying measurement properties of information. We inform firms' cost-benefit analyses of real options valuation and suggest that a low-cost reporting change influences reliance on real options values in decisions.