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Uncertainty and the market valuation of R&D within a real options logic

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  • Raffaele Oriani
  • Maurizio Sobrero

Abstract

The aim of this study is to provide new theoretical insights and empirical evidence on the effect of market and technological uncertainty on the market valuation of a firm's R&D capital. A set of hypotheses is developed adopting a real options logic and tested on a panel dataset of 290 manufacturing firms traded in the UK. Consistently with our theoretical model, we show that market and technological uncertainty have distinct effects on the valuation of R&D investments. The results have several important implications for resource allocation to R&D under uncertainty, which we discuss in the concluding section. Copyright © 2008 John Wiley & Sons, Ltd.

Suggested Citation

  • Raffaele Oriani & Maurizio Sobrero, 2008. "Uncertainty and the market valuation of R&D within a real options logic," Strategic Management Journal, Wiley Blackwell, vol. 29(4), pages 343-361, April.
    • Handle: RePEc:bla:stratm:v:29:y:2008:i:4:p:343-361
    DOI: 10.1002/smj.664
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