@article{5bc9da3ac85d4206b5356c37f4415fa3,
title = "Investor valuation of the abandonment option",
abstract = "We investigate whether investors price the option to abandon a firm at its exit value. Theory prices this real option as an American put with both a stochastic strike price (exit value) and a stochastic value of the underlying security (the value of cash flows). The empirical implications are that firm value increases in exit value, after controlling for expected going-concern cash flows, and that more generalizable assets produce more abandonment option value. Using discounted earnings forecasts to proxy for expected cash flows and prior literature to categorize asset generalizability, we find strong support for the predictions of abandonment option theory.",
keywords = "Abandonment option, Asset structure, Earnings forecasts, Exit, Valuation",
author = "Berger, {Philip G.} and Eli Ofek and Itzhak Swary",
note = "Funding Information: We investigate whether investors use balance sheet information about I firm{\textquoteright}s assets to value their option to abandon the continuing business in exchange for the assets{\textquoteright} exit value. As uncertainty about future cash flows is resolved. investors might choose to exercise their option to abandonth e firm for its exit value. This {\textquoteleft}kresponding author. We appreciate hetphrl comments from Ron Adiel, Andrew Alfcd. Jacob l3mddh. Paul Firher. Bob Holthausen, Kwc John, Anthony Lynch. Krishna Palepu (the referee). Josh kmen. Rick Ruback (the editor). Richard Sloan, Robert Whidrw. aml work* vripantz at the An&can Accounting Association am~I Ming. the Third Harvard Summer Financial Decisions and Control Workshop. the Sirrth Annual Ccderence on Financial Economics and Accounting. and the University of Pennsylvania. We gratefully aeknowkdge the contributrtion of I/B/E?3 Inc. for providing earnings per share foreci& data available through the lnsttiional Brokers Estimate System. Bergcr acknowledges the Snanckl srrppcn of Cwpm & Lybrand and the Wharton Junior Faculty Research Fund.",
year = "1996",
month = oct,
doi = "10.1016/0304-405X(96)00877-X",
language = "אנגלית",
volume = "42",
pages = "259--287",
journal = "Journal of Financial Economics",
issn = "0304-405X",
publisher = "Elsevier",
number = "2",
}