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The use of real option theory in Scandinavia's largest companies

Author

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  • Horn, Anders
  • Kjærland, Frode
  • Molnár, Peter
  • Steen, Beate Wollen

Abstract

We survey the CFOs of 1500 largest companies from Norway, Denmark and Sweden (500 from each country) about their capital budgeting process with focus on the real option analysis. Only 6% of the respondents use real options, whereas the most used technique, the net present value, is used by 74% of the CFOs. Real options are more often used by companies in the energy and biotech sectors, large companies and companies with high capital and R&D expenditures. Lack of familiarity is the most important reason for non-use, where 70% of respondents report to not be familiar with real option concepts and techniques. For the respondents familiar with the framework, the complexity of real options is the main hinder for implementation.

Suggested Citation

  • Horn, Anders & Kjærland, Frode & Molnár, Peter & Steen, Beate Wollen, 2015. "The use of real option theory in Scandinavia's largest companies," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 74-81.
    • Handle: RePEc:eee:finana:v:41:y:2015:i:c:p:74-81
    DOI: 10.1016/j.irfa.2015.05.026
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    References listed on IDEAS

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    More about this item

    Keywords

    Real options; Capital budgeting; Survey;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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