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Real Options, (Dis)Investment Decision‐Making and Accounting Measures of Performance

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  • Andrew W. Stark

Abstract

This paper suggests that a residual income‐type measure of performance can be designed which supports optimal investment and disinvestment decision‐making in a real options framework involving the options to wait before investing and to abandon. The measure has a number of advantages and disadvantages. Nonetheless, the balance of advantage versus disadvantage for the proposed measure must be set against the inadequacies of other competing measures of performance and associated organisational designs. Even if the measure of performance suggested is not regarded as practically useful, it has another general advantage – it can be used as a benchmark against which to evaluate other performance measures with regard to their support of optimal investment and disinvestment decision‐making in a real options framework.

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  • Andrew W. Stark, 2000. "Real Options, (Dis)Investment Decision‐Making and Accounting Measures of Performance," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(3‐4), pages 313-331, April.
    • Handle: RePEc:bla:jbfnac:v:27:y:2000:i:3-4:p:313-331
    DOI: 10.1111/1468-5957.00315
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    Cited by:

    1. Thomas Pfeiffer, 2004. "Net Present Value‐Consistent Investment Criteria Based on Accruals: A Generalisation of the Residual Income‐Identity," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(7‐8), pages 905-926, September.
    2. San–Lin Chung & Mark B. Shackleton, 2007. "Generalised Geske‐‐Johnson Interpolation of Option Prices," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(5‐6), pages 976-1001, June.

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