A valuation of managerial flexibility embedded real options: Evidence from the taiwan mobile telecommunication industry

Ming-Cheng Wu, Liang Jie Lin

Research output: Contribution to journalArticle

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Abstract

A lot of previous studies have shown that the managerial flexibility can be evaluated using real options approaches. But few studies have focused on the valuation of telecommunication industries. This paper applies the approach of multiple real options to the valuation of various types of managerial flexibility in the mobile telecommunication industry. The study also incorporates the competitive characteristics found in the telecommunication industry by using the Log-Transformed Binomial Model with Exogenous Jumps (LBEJ) of Trigeorgis (1996) that take into account the competitive conditions of the industry as a basis for valuation. In addition, the present paper carries out an empirical analysis that aims at establishing the valuation of investment projects for all six mobile telecommunication firms in Taiwan. Empirical results show that expanded NPV is positive only if multiple types of managerial flexibility are taken into consideration. This indicates that it is possible to undervalue investment projects and lose a number of good investment opportunities if multiple types of managerial flexibility are not considered. Further, this study shows that every time a different type of managerial flexibility is added, it makes positively contributes to the overall valuation. However, interactions do exist between the options for these types of managerial flexibilities that have different characteristics. This result demonstrates that the values of different managerial flexibilities do not have the quality of "additivity".

Original languageEnglish
Pages (from-to)253-269
Number of pages17
JournalInternational Journal of Information and Management Sciences
Volume18
Issue number3
Publication statusPublished - 2007 Sep 1

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All Science Journal Classification (ASJC) codes

  • Control and Systems Engineering
  • Management Information Systems
  • Strategy and Management
  • Industrial and Manufacturing Engineering
  • Information Systems and Management

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