The Effects of Abandonment Options on Investment Timing and Profit Sharing of FDI
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...
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| Format: | Article |
| Language: | English |
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Wiley
2017-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2017/5141975 |
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| _version_ | 1832549470393335808 |
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| author | Weiwei Zhang Minggao Xue |
| author_facet | Weiwei Zhang Minggao Xue |
| author_sort | Weiwei Zhang |
| collection | DOAJ |
| description | 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. |
| format | Article |
| id | doaj-art-c2af51eecd0c488cb18f536d77687021 |
| institution | Kabale University |
| issn | 1026-0226 1607-887X |
| language | English |
| publishDate | 2017-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Discrete Dynamics in Nature and Society |
| spelling | doaj-art-c2af51eecd0c488cb18f536d776870212025-02-03T06:11:21ZengWileyDiscrete Dynamics in Nature and Society1026-02261607-887X2017-01-01201710.1155/2017/51419755141975The Effects of Abandonment Options on Investment Timing and Profit Sharing of FDIWeiwei Zhang0Minggao Xue1School of Management, Huazhong University of Science & Technology, 430074 Wuhan, ChinaSchool of Management, Huazhong University of Science & Technology, 430074 Wuhan, ChinaThe 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.http://dx.doi.org/10.1155/2017/5141975 |
| spellingShingle | Weiwei Zhang Minggao Xue The Effects of Abandonment Options on Investment Timing and Profit Sharing of FDI Discrete Dynamics in Nature and Society |
| title | The Effects of Abandonment Options on Investment Timing and Profit Sharing of FDI |
| title_full | The Effects of Abandonment Options on Investment Timing and Profit Sharing of FDI |
| title_fullStr | The Effects of Abandonment Options on Investment Timing and Profit Sharing of FDI |
| title_full_unstemmed | The Effects of Abandonment Options on Investment Timing and Profit Sharing of FDI |
| title_short | The Effects of Abandonment Options on Investment Timing and Profit Sharing of FDI |
| title_sort | effects of abandonment options on investment timing and profit sharing of fdi |
| url | http://dx.doi.org/10.1155/2017/5141975 |
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