The recent change in the global economic environment produced a significant transformation in the conditions that affect managerial decisions. In fact, the increase in globalization led to higher managerial flexibility and a transformation in competition. Additionally, the financial crisis caused a lack of liquidity in financial markets. These circumstances originated a shift in the way investment opportunities should be analysed in global industries. Managerial flexibility can translate itself into expansion to other markets besides the initial ones. This possibility is analysed in the existing literature through real options analysis. In global markets competition is assured by global firms. However, the number of these firms is scarce. Therefore, global competition is made by a limited number of firms. This type of competition is analysed in the existing literature through game theory. The lack of liquidity in financial markets makes financing harder to obtain and exacerbates the conflicts of interests between the different stakeholders of a firm. Such conflicts are studied in the existing literature through agency theory. Therefore, a real options analysis under agency conflicts between equity and debt in the presence of competition is well suited to analyse investment opportunities in the present economic environment. The setting under which such analysis is performed considers two firms in a market that share a growth option to expand its scale of operations for a fixed investment outlay. The firms are financed by both equity and debt and the exercise of the expansion option is financed by an additional equity issue. Cournot-Nash equilibrium is considered and two alternative managerial policies are set: a first-best policy, which maximizes the value of the firm and a second-best policy, which maximizes the value of the equity of the firm. The results obtained with the numerical simulation performed demonstrate that agency costs exist in the presence of competition and lead to an underinvestment situation.

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Real options,Agency theory,Game theory,Capital structure