search query: @author Ofek, E. / total: 11
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| Author: | Berger, P. G. Ofek, E. Swary, I. |
| Title: | Investor valuation of the abandonment option |
| Journal: | Journal of Financial Economics
1996 : OCT, VOL. 42:2, p. 257-287 |
| Index terms: | VALUATION ASSETS EARNINGS |
| Language: | eng |
| Abstract: | We investigate whether investors price the option to abandon a firm at its exit value. Theory prices this real option as an American put with both a stochastic strike price (exit value) and a stchastic value of the underlying security (the value of cash flows). The empirical implications are that firm value increases in exit value, after controlling for expected going-concern cash flows, and that more generalizable assets produce more abandonment option value. Using discounted earnings forecasts to proxy for expected cash flows and prior literature to categorize asset generalizability, we find strong support for the predictions of abandonment option theory. |
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