Firm’s Resilience, Real Options and Liability Options: A Theorical Model

This paper marks an initial effort to develop a new theoretical framework that models how firms withstand shocks, using a real options approach and considering stakeholder rights during processes of firm reconfiguration. First, our modeling is based on the degree of real options exploitation as a function of the firm's ability to offset the dynamic of sales revenues with operating costs dynamic; second, we extend real options, as tools for responding to shocks, through the concept of liability options, the latter being expression of asymmetric rights of firm’s stakeholders. The examination of the extent to which real options are exercised from an internal standpoint, combined with the extension of Real Options Theory to encompass liability options, provides a first conceptual framework for understanding how firms’ responses to shocks give rise to positive or negative externalities. This result lays the groundwork for a deeper understanding of value creation under conditions of instability, and of how the micro-dynamics of individual firms fit into a broader systemic mosaic. Within this mosaic, the costs and benefits produced by each firm’s reaction to shocks emerge from the interplay between contingent assets and contingent liabilities that link individual behavior to collective outcomes.