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The real option approach to investments can simply be considered as the extension of financial option theory to options on real (i.e. non-financial) assets. This approach underlies the need to consider the value of flexibility coupled to irreversible investment decisions in an uncertain environment. As main result, the theory offers the conclusion that it may be better to delay an investment even when its immediate net present value is positive. Aim of this paper is to critically survey some of the most recent advances of this literature with a special attention to the recent studies which emphasize the strategic relevance of the interactions among the investment decisions of firms.

This paper investigates the interaction between investment decisions, company bankruptcy, and capital structure. We model young and innovative enterprises which face the possibility of making irreversible investments in R&D with uncertain returns, financed through risky debt. Uncertainty comes from two different sources: the technological success of the project and the return from investment. In an optimal investment setting, where uncertainty creates an incentive to delay investment decisions, we find the optimal threshold of entry (invest) and exit (bankruptcy), investigating both the case of infinite and finite debt maturity. We show that the potential loss of the investment option in the event of default, reduces the value of waiting and provides equity holders with an incentive to accelerate the investment. Thus the results of the model here presented seem to imply an active role for financial institutions but traditional loans may not be the most suitable solution to finance risky investment. In line with recent recommendations of the European Investment Bank (EIB, 2013), traditional bank lending might need to be reinforced through further instruments, such as loan guarantees and securitisation.

This note reviews a recent book by Siro Lombardini on Growth and Economic Development. The review re-examines old and new theories of growth. In particular, the importance of the recent theoretical models of endogenous growth (aiming at identifying endogenous, as opposed to exogenous, engines of growth) is assessed. The paper also analyses a recent and promising line of research pursued by Siro Lombardini By using the theory of natural evolution and selection, Lombardini enlarges Schumpeter's theory of economic development and shows how innovation can account for growth.

This paper analyzes the influence of ownership structure on investment allocation decisions in a hierarchical corporate group. Such a group is characterized by an inbuilt conflict of interests since the controlling shareholder's objectives do not necessarily coincide with those of minority shareholders, the latter being only interested in the maximization of the value of the firm in which they have invested. The purpose of this paper is to derive a formal theoretical model to explain the intuitive fact that the actions of the controlling shareholder, taken in the interest of the entire group, may sometimes damage some of the subsidiaries. Resource allocation processes in both a group and a multidivisional firm are analyzed and compared. Conditions on the (integrated) group's ownership are established which make the multidivisional form preferable for minority shareholders. The effects of changes in ownership structure on both the underlying and market values of the group's member firms are also analyzed. The analysis here developed provides a simple analytical framework to investigate how the decisions of groups' controlling investors affect the investment of minority shareholders, and is intended as a first step toward a proper understanding of business groups' internal functioning.