A real options approach to growth opportunities and resilience aftermath of the COVID-19 pandemic

Zhi Wang, Arvind Upadhyay, Anil Kumar

Research output: Contribution to journalArticlepeer-review

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Abstract

Purpose
Facing the challenges posed by the pandemic of COVID-19, this paper aims to contribute to the resilience of businesses through the development of a real options approach (ROA) that provides alternatives and opportunities for a decision process under situations when future events and outcomes are unknown and not capable of being known from current information.

Design/methodology/approach
This paper involves a stochastic modelling process in generating a set of absolute option values, using available data and scenarios from the COVID-19 pandemic event. The modelling and simulations using ROA suggest how strategic portfolios resolve the growing problem during the endemic to all but in the most isolated societies.

Findings
This study finds the emergent correlation between circuit breakers and lockdowns, which have brought about a “distorted gravity” effect (inverse growth of global businesses and trades). However, “time-to-build” real options (i.e. deferral, expand, switch and compound exchange) start to function in the adaptive-transformative capabilities for growth opportunities of both government and corporate sectors. Significantly, some sectors grow faster than others while the compound exchange remains primarily challenging. Clearly, the government and corporate sectors are entangled, inevitably, the decoherence allows for the former to change uncertainty in the latter; therefore, government sector options change option values in the corporate sector.

Originality/value
The ROA by empirically focusing on both government and corporate sectors demonstrates under conditions of uncertainty how options in decision-making generate opportunities that hitherto have not been recognised and exercised upon by research in the immediate context of the COVID-19 pandemic. Importantly, the ROA provides an insightful concatenation (capability–behaviour approach) that drives resilience.
Original languageEnglish
JournalJournal of Modelling in Management
Early online date27 May 2022
DOIs
Publication statusE-pub ahead of print - 27 May 2022

Keywords

  • dynamic capabilities
  • growth opportunity
  • pandemic
  • real options
  • resilience

ASJC Scopus subject areas

  • Decision Sciences(all)
  • Strategy and Management
  • Management Science and Operations Research

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