Abstract
For business decisions involving upfront commitment of resources to uncertain future outcomes, real options theory presents itself as a powerful tool in helping firms contain downside risk while preserving upside potential. Managers are often confronted with choices whether, when and how to invest in firm assets. In a world of capital constraints and opportunity costs, careful consideration of alternatives is a prerequisite. Otherwise, any misjudgement might compromise not only competitiveness but the very existence of the firm itself. While the fields of financial economics and strategy approach real options with different questions in mind, namely company valuation and competitive advantage respectively, issues of understanding the decision-making process itself still remain a tall order for scholars and executives alike. To shed light into this subject matter, the current work turns to the maritime shipping industry. An industry fraught with uncertainty and risk, where investment decisions and their complexities are at the forefront. The empirical setting has been chosen to reflect these challenges and provide rich contextual insight, informing both theory and practice. The overall aim is to bring real options theory closer to the actual intricacies reverberating business practice. By doing so, the thesis attempts to develop a decision-making framework and motivate concerted efforts in future empirical research.