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Managing Uncertainty in a Formal Standards-Based Industry: A Real Options Perspective on Acquisition Timing

James F. Fairbank

Penn State Erie, the Behrend College, the Sam and Irene Black School of Business, 5091 Station Road, Erie, PA 16563

H. Kevin Steensma

University of Washington Business School, Management and Organization Department, Mackenzie Hall, Box 353200, Seattle, WA 98195-3200

Scholars have theorized that firms can intervene in the creation of formal technology standards to reduce uncertainty and influence the outcome to their advantage. One approach is through early acquisition: Firms can acquire targets with relevant technology prior to standardization. Using real options logic, the authors show how early acquisitions can be considered a growth option under certain circumstances. They find that acquisitions are more likely to occur before the passage of the standard when (a) acquirers lacked relevant technical knowledge, (b) target firms possessed relevant technical knowledge,and (c) acquirers had a prior equity investment in the target firm.

Key Words: real options • acquisition • technology standards • telecommunications

Journal of Management, Vol. 32, No. 2, 279-298 (2006)
DOI: 10.1177/0149206305280108


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