Resources,real options,and corporate strategy |
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| Affiliation: | 1. Department of Finance, Wharton School, University of Pennsylvania, 3620 Locust Walk, Philadelphia, PA 19104, United States;2. Rotman School of Management, University of Toronto, 105 St. George Street, Toronto, ON M5S3E6, Canada;3. Guanghua School of Management, Peking University, Peking 100871, China;1. King''s College London, London, United Kingdom;2. University of Cyprus, Nicosia, Cyprus;3. MIT, Cambridge, MA, United States |
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| Abstract: | The types of investments a firm undertakes will depend in part on what it expects the outcome of those investments to reveal about its skills, capabilities, and assets (i.e., its resources). We predict that a firm will specialize when young, then experiment in a new line of business for some time, and then either expand into a large, multisegment business or focus and scale up its specialized business. We derive several empirical implications for firm valuations and the reaction of stock prices to news about firm prospects. We also offer a novel explanation for the well-documented “diversification” discount. |
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