The Firm's Value and Timing of Adopting E-Commerce Using Real Options Analysis under Uncertainty

This paper applies real options analysis to analyze the optimal decision of adopting e-commerce when a firm’s output price is uncertain. The traditional discount cash flow method ignores the value of timing and operational flexibility. Therefore, it might underestimate the value of adopting e-commerce. The paper is the first study to build a theoretical derivation to detect the impact of adopting e-commerce on a firm’s value and timing based on the real options analysis. This study finds that increasing e-commerce investment and increasing price volatility will increase a firm’s value while delay the timing of adopting e-commerce. By contrast, decreasing efficiency of e-commerce will decrease a firm’s value and delay the timing of adopting e-commerce.