Relative exploration orientation and real options reasoning: survey evidence from Denmark
ISSN: 0955-534X
Article publication date: 17 June 2021
Issue publication date: 1 February 2022
Abstract
Purpose
This paper aims to extend the understanding of how real options reasoning (ROR) is associated with downside risk and how a firm’s portfolio (explore and exploit) of investment activities affects managers’ ability to effectively apply ROR in relation to downside risk.
Design/methodology/approach
The survey method is used. It is applied to a population of Danish firms, which in 2018 had more than 100 employees. The chief financial officer was the target respondent.
Findings
This study finds that a higher level of ROR is associated with lower levels of downside risk. ROR’s association with lower levels of the downside risk is also moderated by the level of relative exploration orientation in a negative direction.
Originality/value
The field of ROR research on downside risk and portfolio subadditivity has been dominated by research focused on multinationality. This paper extends extant literature on ROR by studying ROR as a multidimensional construct of firm action, which is associated with lower levels of downside risk, also when studied outside of a multinationality setting. This is the case when ROR is implemented as a complete system. This paper also applies a framework of exploitation and exploration to show that findings on subadditivity in options portfolios caused by asset correlations extend outside the scope of multinationality and into one of product/service innovation.
Keywords
Acknowledgements
The authors want to thank both reviewers for constructive comments that improved this paper and we want to thank the editor Anders Pehrsson.
Citation
Jensen, C.H. and Kristensen, T.B. (2022), "Relative exploration orientation and real options reasoning: survey evidence from Denmark", European Business Review, Vol. 34 No. 2, pp. 191-223. https://doi.org/10.1108/EBR-07-2020-0172
Publisher
:Emerald Publishing Limited
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