Influence of Transaction costs and real options on firms’ own-or-rent decision for building resources in Mekelle, Ethiopia
Commonsense suggests that buildings are the most primary resources that most organized business commends. Importance aside, firms however obtain building resources via two broad alternative paths or a combination of both: ownership and rental. Based on secondary data on 79 companies in Mekelle, Ethiopia, this paper investigates the influence of transaction cost and real option factors on firms’ own or rent decision for building resources. Empirical results suggest that both transaction cost and option factors have significant influence on firms’ own or rent decision. High asset specificity combined with sales uncertainty or high small numbers condition or high growth opportunities individually increase likelihood of ownership, while high sales uncertainty for firms’ products increase likelihood of rental.
Keywords: transaction cost economics; real option theory; own-or-rent decision; business buildings
Copyright (c) 2012 KCA Journal of Business Management
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.Submitted papers must be original work of the author(s) and should not violate any existing local and international copyright laws. The copyright of published papers shall be held by KCA University but author(s) retain the right to use their own work in other publications provided they acknowledge KCA University as the original publisher. Each time the author(s) use their own work published by KJBM in other publications a full citation must be made