Strategic Investment
Real Options and Games
By: Han T. J. Smit, Lenos Trigeorgis
About This Book
Corporate finance and corporate strategy have long been seen as different sides of the same coin. Though both focus on the same broad problem, investment decision-making, the gap between the two sides--and between theory and practice--remains embarrassingly large. This book synthesizes cutting-edge developments in corporate finance and related fields--in particular, real options and game theory--to help bridge this gap. In clear, straightforward exposition and through numerous examples and applications from various industries, Han Smit and Lenos Trigeorgis set forth an extended valuation framework for competitive strategies. The book follows a problem-solving approach that synthesizes ideas from game theory, real options, and strategy. Thinking in terms of options-games can help managers address questions such as: When is it best to invest early to preempt competitive entry, and when to wait? Should a firm compete in R&D or adopt an accommodating stance? How does one value growth options or infrastructure investments? The authors provide a wide range of valuation examples, such as acquisition strategies, R&D investment in high-tech sectors, joint research ventures, product introductions in consumer electronics, infrastructure, and oil exploration investment. Representing a major step beyond standard real options or strategy analysis, and extending the power of real options and strategic thinking in a rigorous fashion, Strategic Investment will be an indispensable guide and resource for corporate managers, MBA students, and academics alike.
AI Overview
Book Overview: "Strategic Investment" by Han T. J. Smit and Lenos Trigeorgis
Key Themes:
- Integration of Corporate Finance and Strategy: The book aims to bridge the gap between corporate finance and corporate strategy by synthesizing cutting-edge developments in these fields.
- Real Options: It focuses on the real options approach to capital investment, which considers the flexibility available to companies to adapt projects as they unfold.
- Game Theory: The book incorporates game-theoretic analysis of strategic interactions, helping managers understand competitive dynamics and make informed decisions.
- Valuation Framework: It provides an extended valuation framework for competitive strategies, addressing questions like when to invest early to preempt competitive entry and how to value growth options or infrastructure investments.
Plot Summary: The book follows a problem-solving approach, using numerous examples and applications from various industries to illustrate the power of combining real options and game theory. It covers a wide range of valuation examples, including:
- Acquisition Strategies
- R&D Investment in High-Tech Sectors
- Joint Research Ventures
- Product Introductions in Consumer Electronics
- Infrastructure and Oil Exploration Investments
The authors use actual case settings and hypothetical situations to demonstrate how these strategic tools can be applied in practice. The book is designed to help managers address complex strategic investment decisions by providing a rigorous and comprehensive framework.
Critical Reception: The book has received positive reviews from both academics and practitioners. Here are some excerpts:
Robert C. Merton, Harvard Business School and Nobel Laureate in Economic Sciences: "This excellent book builds bridges across two dimensions. First, it synthesizes the real options approach to capital investment and game-theoretic analysis of strategic interactions. Second, it spans sophisticated theory and business practice. Academics as well as business managers can learn from it and enjoy its wonderfully clear exposition."
Manageris Opinion: "This book is designed to offer a more complete framework for analyzing strategic investments than the traditional Net Present Value method... The wealth of information and the variety of detailed case studies and illustrations make it particularly interesting."
However, it is noted that the book's long, technical explanations may make it challenging for non-specialized readers, suggesting that they refer to the introduction and chapter 10 for a quicker grasp of the main ideas.
Overall, "Strategic Investment" is considered an indispensable guide for corporate managers, MBA students, and academics alike, offering a powerful synthesis of modern corporate finance and corporate strategy.