Organisational change and performance in long-lived small firms: a real options approach

Bernadette Power, Gavin Reid

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

This paper supports two key principles of real options reasoning: (a) the value of waiting and (b) the value of staging. It tests whether real options logic applies to small firms implementing significant changes (e.g. in technology) in a model of small firm performance, estimated on data collected by interviews with entrepreneurs. We found that to achieve a higher value by waiting, a delicate balance of precipitators of change against time until exercise is necessary (e.g. if there were just one or two precipitators, then waiting would certainly raise the value). Similarly, to achieve a higher value by staging, the entrepreneur needs to balance embedding against investment time. Thus, provided that investment time is less than 1¼ years, we found that embedding will raise the value. Overall, this implies that strategic flexibility in investment decisions is necessary for good long-run performance of small firms.
Original languageEnglish
Pages (from-to)791-809
Number of pages19
JournalEuropean Journal of Finance
Volume19
Issue number7-8
Early online date27 Apr 2013
DOIs
Publication statusPublished - 2013

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Keywords

  • real options
  • strategic flexibility
  • value of waiting performance
  • small firms

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