Abstract
This paper incorporates a fuzzy process into an abandonment option approach, to investigate the effects of managerial optimism and pessimism when a manager considers whether to abandon capital budgeting decisions or not under conditions of irreversible investment and uncertain market environment. We find that managerial optimism would encourage firms to continue the project, while managerial pessimism would encourage them to liquidate it, when the abandonment option value is located in a fuzzy sentiments region.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
References
Black, F., Scholes, M.: The pricing of options and corporate liabilities. J. Polit. Econ. 81(3), 637–654 (1973)
Brennan, M., Schwartz, E.: Evaluating natural resource investments. J. Bus. 58(2), 135–157 (1985)
Comment, R., Jarrell, G.A.: Corporate focus and stock returns. J. Financ. Econ. 37, 67–87 (1995)
DeBondt, W., Thaler, R.: Financial decision-making in markets and firms: a behavioral perspective. In: Jarrow, R., et al. (eds.) Handbooks in OR and MS, vol. 9, pp. 385–410. Elsevier, Amsterdam (1995)
Dixit, A.K., Pindyck, R.S.: Investment Under Uncertainty. Princeton University Press, Princeton (1994)
Dyl, E., Long, H.: Abandonment value and capital budgeting: comment. J. Finance 24, 88–95 (1969)
John, K., Ofek, E.: Asset sales and increases in focus. J. Financ. Econ. 37, 105–126 (1995)
Kaiser, K.M.J., Stouraitis, A.: Agency costs and strategic considerations behind sell-offs: The UK evidence. Eur. Financ. Manage. 7(3), 319–349 (2001)
Kaplan, N.S., Weisbach, M.S.: The success of acquisitions: evidence from divestitures. J. Finance 47, 107–138 (1992)
Lang, L., Poulsen, A., Stulz, R.: Asset sales firm performance, and the agency costs of managerial discretion. J. Financ. Econ. 37(1), 3–37 (1995)
Liu, Y.H., Jiang, I.M.: Influence of investor subjective judgments in investment decision-making. Int. Rev. Econ. Financ. 24, 129–142 (2012)
McDonald, R., Siegel, D.: Investment and the valuation of firms when there is an option to shut down. Int. Econ. Rev. 26, 331–349 (1985)
Merton, R.: Theory of rational option pricing. Bell J. Econ. Manage. Sci. 4(1), 141–183 (1973)
Myers, S.C., Majd, S.: Abandonment value and project life. In: Advances in Futures and Options Research, vol. 4, pp. 1–21 (1990)
Wong, K.P.: The effects of abandonment options on investment timing and intensity. Bull. Econ. Res. 64(3), 305–318 (2012)
Zadeh, L.A.: Fuzzy sets. Inf. Control 8, 338–353 (1965)
Acknowledgements
The authors would like to thank the anonymous reviewers for their valuable comments and suggestions to improve the quality of the paper. Professor Liu and Jiang acknowledge financially (partially) supported by the Ministry of Science and Technology of the Republic of China, Taiwan (MOST 105-2410-H-006-015 and MOST 105-2632-H-155-001).
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2017 Springer International Publishing AG
About this paper
Cite this paper
Liu, YH., Jiang, IM., Tsai, MI. (2017). Making Capital Budgeting Decisions for Project Abandonment by Fuzzy Approach. In: Tan, Y., Takagi, H., Shi, Y., Niu, B. (eds) Advances in Swarm Intelligence. ICSI 2017. Lecture Notes in Computer Science(), vol 10386. Springer, Cham. https://doi.org/10.1007/978-3-319-61833-3_29
Download citation
DOI: https://doi.org/10.1007/978-3-319-61833-3_29
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-319-61832-6
Online ISBN: 978-3-319-61833-3
eBook Packages: Computer ScienceComputer Science (R0)