Real options in divestment alternatives

  • Damaraju N
  • Barney J
  • Makhija A
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This paper examines the implications of real options theory for both the decision to divest a business unit and themode of divestment. It is shown that the decision to divest a business unit and the decision to engage in staged modes of divestment are both sensitive to uncertainty, consistent with a real options logic. However, in the face of uncertainty, the results suggest that staged forms of governance create real options that are of lesser value as compared to simply not divesting a business unit and also as compared to completely divesting a business unit. Thus, this study shows that firms have real options of varied value to choose fromin the context of divestments

Author-supplied keywords

  • divestment mode choices
  • divestment strategies
  • divestments
  • real options
  • uncertainty

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  • Naga Lakshmi Damaraju

  • Jay B. Barney

  • Anil K. Makhija

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