Resources, real options, and corporate strategy
The types of investments a ﬁrm undertakes will depend in part on what it expects the outcome of those investments to reveal about its skills, capabilities, and assets (i.e., its resources). We predict that a ﬁrm will specialize when young, then experiment in a new line of business for some time, and then either expand into a large, multisegment business or focus and scale up its specialized business. We derive several empirical implications for ﬁrm valuations and the reaction of stock prices to news about ﬁrm prospects. We also offer a novel explanation for the well-documented ‘‘diversiﬁcation’’ discount.