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Article: A patent race in a real options setting: Investment strategy, valuation, CAPM beta, and return volatility

TitleA patent race in a real options setting: Investment strategy, valuation, CAPM beta, and return volatility
Authors
KeywordsPatent race
R&D investments
Stochastic game
Strategic real options
Issue Date2008
PublisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/jedc
Citation
Journal Of Economic Dynamics And Control, 2008, v. 32 n. 10, p. 3192-3217 How to Cite?
AbstractIn this paper, we study financial properties of R&D intensive firms through a continuous-time real-options patent-race model. Numerical analysis in this study shows that intense competition drives a firm to invest more aggressively, which then pushes up its cost of capital and return volatility while introducing negative return correlation with its competitor. Furthermore, we find that a firm's position in competition has important impacts on its financial properties. For instance, a firm's cost of capital is a non-monotonic function of its relative position in the race. In addition, the relationship between cash flow uncertainty and investment can be negative when a firm is far ahead or far behind, or positive when firms are close in the race. © 2008 Elsevier B.V. All rights reserved.
Persistent Identifierhttp://hdl.handle.net/10722/60148
ISSN
2015 Impact Factor: 0.879
2015 SCImago Journal Rankings: 0.937
SSRN
ISI Accession Number ID
References

 

DC FieldValueLanguage
dc.contributor.authorMeng, Ren_HK
dc.date.accessioned2010-05-31T04:04:46Z-
dc.date.available2010-05-31T04:04:46Z-
dc.date.issued2008en_HK
dc.identifier.citationJournal Of Economic Dynamics And Control, 2008, v. 32 n. 10, p. 3192-3217en_HK
dc.identifier.issn0165-1889en_HK
dc.identifier.urihttp://hdl.handle.net/10722/60148-
dc.description.abstractIn this paper, we study financial properties of R&D intensive firms through a continuous-time real-options patent-race model. Numerical analysis in this study shows that intense competition drives a firm to invest more aggressively, which then pushes up its cost of capital and return volatility while introducing negative return correlation with its competitor. Furthermore, we find that a firm's position in competition has important impacts on its financial properties. For instance, a firm's cost of capital is a non-monotonic function of its relative position in the race. In addition, the relationship between cash flow uncertainty and investment can be negative when a firm is far ahead or far behind, or positive when firms are close in the race. © 2008 Elsevier B.V. All rights reserved.en_HK
dc.languageengen_HK
dc.publisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/jedcen_HK
dc.relation.ispartofJournal of Economic Dynamics and Controlen_HK
dc.rightsNOTICE: this is the author’s version of a work that was accepted for publication in Journal of Economic Dynamics and Control. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Economic Dynamics and Control, [VOL 32, ISSUE 10, 2008] DOI 10.1016/j.jedc.2008.01.001en_HK
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.subjectPatent raceen_HK
dc.subjectR&D investmentsen_HK
dc.subjectStochastic gameen_HK
dc.subjectStrategic real optionsen_HK
dc.titleA patent race in a real options setting: Investment strategy, valuation, CAPM beta, and return volatilityen_HK
dc.typeArticleen_HK
dc.identifier.openurlhttp://library.hku.hk:4550/resserv?sid=HKU:IR&issn=0165-1889&volume=32&issue=10&spage=3192&epage=3217&date=2008&atitle=Apatentrace+in+arealoptions+setting:+Investment+strategy,+valuation,+CAPM+beta,+and+return+volatilityen_HK
dc.identifier.emailMeng, R: meng@hku.hken_HK
dc.identifier.authorityMeng, R=rp01086en_HK
dc.description.naturepostprint-
dc.identifier.doi10.1016/j.jedc.2008.01.001en_HK
dc.identifier.scopuseid_2-s2.0-50049100430en_HK
dc.identifier.hkuros149280en_HK
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-50049100430&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume32en_HK
dc.identifier.issue10en_HK
dc.identifier.spage3192en_HK
dc.identifier.epage3217en_HK
dc.identifier.isiWOS:000260102900006-
dc.publisher.placeNetherlandsen_HK
dc.identifier.ssrn620163-
dc.identifier.scopusauthoridMeng, R=23978604800en_HK

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