| dc.description.abstract | The real options approach to investment decisions has gained widespread popularity over the past
decades for the ability to highlight the value of flexibility under uncertainty. Theory has been
evolving rapidly, much of which has been concerned with increasing realism through incorporating
characteristics of various real-world scenarios. This thesis seeks to contribute to this literature by
studying exercise of real options when both asymmetric information and duopolistic competition
are important factors to consider. Specifically, the aim is to compare exercise of real options
in a duopoly with and without the need for external financing under asymmetric information.
Two different models are developed, building on existing models on asymmetric information
and duopolistic competition. Firms are assumed to have different growth prospects, and require
external finance from uninformed outsiders to be able to invest. Equilibrium outcomes show that
external financing under asymmetric information affect the trigger level for a good type of firm,
but that the direction of distortion is unclear. When outsiders can deduce the type of follower,
the trigger level of a good firm will always drop, while in the opposite case this is not necessarily
true. Furthermore, the analysis shows that when outsiders are able to deduce the type of follower,
good firms may actually choose to invest reactively in order to avoid underpricing. Finally, both
models predict that the need for external finance under asymmetric information will erode the
value of old shareholders in a good type of firm, either through distorted timing or underpricing
arising from adverse selection. Old shareholders of bad firms are contrarily indifferent at worst,
and may for some initial values be better under asymmetric information. | nb_NO |
