High-tech R & D Real Option Valuation

The R&D projects of high-tech companies are characterized by substantial investments and high risks. How to evaluate the investments efficiently is the key to the successful R&D management of the high-tech companies. This issue involves remarkable academic and practical values and also is the main content of this dissertation.Traditional methods, such as the Discounted Cash Flow Method have inherent drawbacks, which fail them in evaluating accurately the R&D investments of the high-tech companies that always contain high risks and managerial flexibilities. These could be summarized as follows: Firstly, traditional methods presume the dealing with the investments is reversible, which results in the negligence of the effects of sunk cost on the corporate investment decision. Secondly, the discount rate with huge weight used in these methods always undervalues the project and leads to abandon decision. Lastly, R&D projects deliver strategic values to high-tech companies but traditional methods tend to miss this kind of value embedded in the ability and flexibility of the management. For all these reasons, the Real Options Theory is introduced into the field.Since 1980s, the RO has been developing rapidly in finance theory and innovation management, which is titled the revolution output of contemporary evaluation methods. Referring to the financial options theory and models, RO merits the management of uncertainty and flexibility in the project, which is crucial to the evaluation of high-tech companies' R&D investment.This dissertation is supported by the project "Research on R&D Management of High-Tech Companies" of the Beijing Municipal Science & Technology Commission. Meanwhile, the author was invited to the University of Cambridge for a one-year research program. During the visit, the author took part in one project named "the Business Appraisal of Technology Potentials" in the Centre of Technology Management, the Institute for Manufacturing and interviewed, investigated and case-studied with the supervisor in the European R&D Centre of Ford, BAE, ICI and AND. Taking benefits from this experience, the author could probe into the research of RO and launched related empirical tests. This dissertation based on all these work.The dissertation takes quantitative and qualitative approaches and combines the...