Real Options in Technology Licensing

“Real options” is often viewed as a valuable managerial tool of flexibility and exploration in new technology investment. Real options theory has been criticized, however, due to difficulties in identifying ex ante what is and what is not a real option, and in falsifying hypotheses about firms’ motivations to undertake and exercise such options. This paper uses unpublished data on firms’ technology licensing decisions to examine factors that influence the purchase and exercise of option contracts. By combining information about the sequence of licensing decisions with characteristics of the firms and technologies involved, I explore factors that shape firms’ decisions to purchase and exercise option contracts for these technologies. Decisions by firms that considered but did not purchase an option or a license also are included in the sample. Several findings stem from this research. Consistent with the basic premise of real options theory, I find that firms are more likely ...

• Type: Journal
• Year: 2007
• Where: MANSCI
• Authors: Arvids A. Ziedonis
• Keywords: MANSCI 2007, Option Contracts, Real Options, Real Options Theory