Faculty Digital Archive

Archive@NYU >
Stern School of Business >
Finance Working Papers >

Please use this identifier to cite or link to this item: http://hdl.handle.net/2451/27110

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

Files in This Item:

File Description SizeFormat
wpa95010.pdf1.88 MBAdobe PDFView/Open

Items in Faculty Digital Archive are protected by copyright, with all rights reserved, unless otherwise indicated.

 

The contents of the FDA may be subject to copyright, be offered under a Creative Commons license, or be in the public domain.
Please check items for rights statements. For information about NYU’s copyright policy, see http://www.nyu.edu/footer/copyright-and-fair-use.html 
Valid XHTML 1.0 | CSS