Black-Scholes Flexibility of European Companies in the Digital Age

Abstract

Research background: “How much is flexibility worth?” This question is the title of one of almost countless contributions. In these, procedures are discussed with which existing room for manoeuvres in corporate management can be quantitatively mapped. When Myers recognized in 1977 that decision-making situations in companies have the characteristics of financial options, he laid the foundation for the theory of real options. In the following years, further articles appeared dealing with the problem of the value-based recording of flexibility. Purpose of the article: The aim of this paper is to empirically test the explanatory variables of Black-Scholes flexibility. A period from 2000 to 2020 is analyzed, as it is assumed that the digital age had already found its way into companies’ business models at that point in time. Methods: In the following, using the approach described above, the value of flexibility from the Black-Scholes call option is determined for the years 2000 to 2020. The sample comprises the STOXX Europe 600. The aim of the model is to test whether the flexibility determined by Black-Scholes can be explained by selected parameters. These include intangibles, sales growth, debt to equity, market to book value, and earnings in the form of profitability Findings & Value added: The results show which variables explain the Black-Scholes flexibility as well as how the Black-Scholes flexibility has evolved over the period studied.