The Use of Real Options in Scandinavia:: Confronting Theory with Practice
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Since Myers first coined the term real options in 1977, the technique has attracted much interest from academics, and several capital budgeting works highlight real options? superiority over standard NPV methods. However, survey literature suggests that practitioners are reluctant to adopt this tool, and real options? popularity seems to be growing at a slow rate. To provide explanations for this paradox, we survey the CFOs of Norway, Denmark and Sweden?s 500 largest companies to uncover their use of real options in the capital budgeting process. The study is the first large-scale survey dedicated to real options practice outside North America, and one of the more extensive works on the topic to date.Only 23 of the 384 respondents report to use real options analysis. Furthermore, we find that a larger fraction of companies in the energy and biotech sectors apply real options analysis, and that large companies with high capital expenditures and high R&D intensity are more likely to use the method. Lack of familiarity is the most important reason for non-use, where 70% of respondents report to not be familiar with real options concepts and techniques. We find that CFOs with MBAs are less familiar with real options than those with non-MBA master?s degrees. For the respondents familiar with the framework, the complexity of real options analysis is reported as the main hinder for implementation. Our survey research contributes to the body of empirical evidence showing that real options have only established a limited foothold in the corporate world.