Ambiguity, Managerial Ability, and Growth Options
Journal article, 2021

This paper studies the role of ambiguity and managerial ability in firm growth options from the perspective of behavioural theory. We argue that managerial ability increases both the identification and exploitation of growth options opportunities, but ambiguity reduces strategic growth options value as a result of information incompleteness and non-Bayesian behaviour. Using a dataset of all US-listed firms, we test the joint effects of ambiguity and managerial ability on growth options value after controlling for standard determinants and endogeneity. The results indicate that ambiguity has a negative effect on growth options value, while ability has a positive effect. We also find that the negative association between ambiguity and growth options is less pronounced with higher managerial ability. These findings underscore the importance of firm heterogeneity in the identification, exercise, and management of strategic and innovative real options opportunities. The paper's contribution provides relevant management insights into the behavioural antecedents of real options at the firm level as well as highlights that managerial and behavioural characteristics are important determinants of growth options value.

managerial ability

ambiguity

behavioural theory

real options

Author

Tarik Driouchi

King's College London

Mingyu Chen

Lancaster University

Zhuo Lyu

King's College London

David Bennett

Chalmers, Technology Management and Economics, Supply and Operations Management

Raymond So

King's College London

British Journal of Management

1045-3172 (ISSN) 1467-8551 (eISSN)

Vol. In press

Subject Categories

Other Engineering and Technologies

Economics

Business Administration

Information Systemes, Social aspects

Areas of Advance

Production

DOI

10.1111/1467-8551.12534

More information

Latest update

8/3/2021 7