| Abstract: | The timing of investment in e‐commerce remains hotly debated in both the academic and investment communities. This study develops a framework for analyzing the optimal timing for a company to invest in e‐commerce for conducting its business‐to‐business (B2B) or business‐to‐consumer (B2C) transactions. This study applies a real option theory to assess a new risk–reward dynamic for investing in e‐commerce. The numerical results demonstrate that the optimal timing of investment in e‐commerce depends on uncertainties regarding future cash flows and the opportunity costs associated with e‐commerce. Implications with regard to the behavior of Internet companies from a financial perspective are discussed. © 2006 Wiley Periodicals, Inc. |
