The Effects of Abandonment Options on Investment Timing and Profit Sharing of FDI
Joint Authors
Source
Discrete Dynamics in Nature and Society
Issue
Vol. 2017, Issue 2017 (31 Dec. 2017), pp.1-11, 11 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2017-04-09
Country of Publication
Egypt
No. of Pages
11
Main Subjects
Abstract EN
The paper incorporates cooperative game theory into a real option method in a foreign direct investment setting and examines the operational decisions of a multinational corporation in a cooperative framework, where the corporation is endowed with an abandonment option and shares its profit with the host country.
In particular, we investigate how the abandonment options affect the optimal investment timing and the optimal profit share of a foreign direct investment using a real option game method.
We show that the flexibility of the abandonment option induces the corporation to investment earlier, which indicates the negative effects on investment trigger.
The result is consistent with intuition since the abandonment option provides insurance and thus reduces the overall risk of the project.
We also find that the introduction of the abandonment option reduces the optimal profit share in a cooperative framework and in turn the lower profit share increases the investment trigger, thereby having a positive effect on the investment threshold to hinder the investment.
By numerical analysis, we find that the overall effect of the abandonment options is inversely related to the investment trigger.
These findings provide quantitative analysis about the decisions regarding cooperation in international investment extraction projects.
American Psychological Association (APA)
Zhang, Weiwei& Xue, Minggao. 2017. The Effects of Abandonment Options on Investment Timing and Profit Sharing of FDI. Discrete Dynamics in Nature and Society،Vol. 2017, no. 2017, pp.1-11.
https://search.emarefa.net/detail/BIM-1151488
Modern Language Association (MLA)
Zhang, Weiwei& Xue, Minggao. The Effects of Abandonment Options on Investment Timing and Profit Sharing of FDI. Discrete Dynamics in Nature and Society No. 2017 (2017), pp.1-11.
https://search.emarefa.net/detail/BIM-1151488
American Medical Association (AMA)
Zhang, Weiwei& Xue, Minggao. The Effects of Abandonment Options on Investment Timing and Profit Sharing of FDI. Discrete Dynamics in Nature and Society. 2017. Vol. 2017, no. 2017, pp.1-11.
https://search.emarefa.net/detail/BIM-1151488
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-1151488