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.