2013 Volume 21 Issue 2 Pages 61-75
The purpose of this article is to clarify the current state of utilization of ROA (Real Options Approach) and to explain the environmental factors that urge the firms to use ROA with regard to investment decision making of Japanese firms. Previous studies pointed out DCF had a tendency to underestimate profitability of investment plans, meanwhile ROA tended to urge overinvestment.
Referring to those studies, this article found a certain environmental factors such as the extent of uncertainty and the types of governance could urge firms to evaluate the properties of real options in investment plans.
