Date of Award


Document Type

Open Access Dissertation

Degree Name

Doctor of Philosophy (PhD)

Degree Program


First Advisor

Bruce C. Skaggs, Chair

Second Advisor

William Wooldridge, Member

Third Advisor

Lawrence S. Zacharias, Member

Subject Categories

Business Administration, Management, and Operations


Real options theory has become an influential explanatory and normative framework for making resource allocation decisions. Despite a growing body of strategy research regarding real options, however, there is as of yet little empirical confirmation (1) that firm resource allocation behavior conforms with real options theory, or (2) that employing real options principles has a positive impact on firm performance. This research examines these questions. Using a survey instrument designed to measure a range of real options-theoretic decision patterns, data has been collected from a sample of 173 U.S. manufacturing firms. This data set has been used to test two central premises. The first is that, in contrast to much of the real options literature, there is no inherently superior real options decision pattern. Instead, real options-optimal investment decisions depend on the magnitude and source of the uncertainties that firms encounter in their task environments. This premise is tested by measuring two important sources of uncertainty in the external environment: uncertainty regarding the level and composition of demand (market uncertainty) and uncertainty regarding the intentions and actions of competitors (competitive uncertainty). I develop the theoretical foundation for expecting that patterns of real options behavior vary with these two sources of uncertainty, and that different sources of uncertainty frequently promote competing real options-theoretic decision behavior. The research tests these hypothesized relationships empirically. The principal contribution of this analysis has been to develop a more fine-grained appreciation of the relationship between real options theory and a multidimensional conceptualization of uncertainty. The second premise of the research is that making investment decisions based on real options principles has a positive effect on firm performance. There is ample theoretical foundation for the superiority of real options theory as a framework for making resource commitment decisions. The research examines this expectation empirically by testing whether the fit or congruence between real options decision patterns and environmental uncertainty is positively related to firm profitability, market value and growth.