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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27110
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| Title: | Investor Valuation of the Abandonment Option |
| Authors: | Berger, Philip G.
Ofek, Eli
Swary, Itzhak |
| Issue Date: | May-1995 |
| Series/Report no.: | FIN-95-010 |
| Abstract: | We investigate whether investors price the option to abandon the firm
for its liquidation value. Theory prices this real option as an American
put with both a stochastic strike price (liquidation value) and a
stochastic value of the underlying security (the value of cash flows).
The major empirical implications are that firm value increases in
liquidation 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 relying on prior literature to categorize asset
generalizability, we find strong support for abandonment option
theory’s predictions. |
| URI: | http://hdl.handle.net/2451/27110 |
| Appears in Collections: | Finance Working Papers
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