The optimal timing and conditions for the digital transformation of traditional enterprises

Zhuming Chen and Wanhua Liang

The North American Journal of Economics and Finance, 2025, vol. 79, issue C

Abstract: By taking data as the core factor of production, reconstructing the corporate value function after digital transformation and using in real option game theory, this paper provides an analytical formula for the optimal timing of the digital transformation of traditional corporations, the value functions of leader corporations and follower corporations and the optimal timing of digital transformation. This study identifies at least 11 factors that influence the optimal timing of transition. The study shows that the greater the cost of transformation investment, the higher the expected return of the enterprise is, the higher the marginal cost of production of the enterprise, the slower the digital transformation, and the longer the interval between the digital transformation of the follower after the transformation of the leader. Usually, the optimal time for the digital transformation of large enterprises is earlier than that of small and medium-sized enterprises. The more data elements an enterprise generates, the better the growth of the industry and the data element market, the higher the volatility, the faster the transformation, and the shorter the transition time between leaders and followers.

Keywords: Digital transformation; Traditional enterprises; Data; Real options game theory; Optimal timing; Leader strategy (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:79:y:2025:i:c:s106294082500083x

DOI: 10.1016/j.najef.2025.102443

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