The Valuation of Information Technology Investments by Real Options Analysis

Kuo-Jung Lee (), David S. Shyu () and Miao-Ling Dai ()
Additional contact information
Kuo-Jung Lee: Department of Commerce Automation and Management, National Pingtung Institute of Commerce, 51, Minsheng E. Rd., Pingtung City 900, Taiwan
David S. Shyu: Department of Finance, National Sun Yat-Sen University, Kaohsiung 804, Taiwan
Miao-Ling Dai: Department of General Education, National Sun Yat-Sen University, Kaohsiung 804, Taiwan

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2009, vol. 12, issue 04, 611-628

Abstract: This study establishes a dynamic model under real options analysis to analyze the optimal timing decision of information technology (IT) investments when the output price for firms is stochastic and benefits of IT investments are arisen from the increasing output price, increasing sale, and cost savings. We derive the closed form expression of the timing of IT investments and furthermore prove that IT investments rise at an increasing rate in economic booms and fall in economic busts. This study finds that increasing (decreasing) price volatility will delay (advance) the timing of IT investments. Increasing IT investments, however, may not delay the timing of IT investments. In addition, the decreasing (increasing) efficiency and increasing (decreasing) depreciation of IT investments will delay (advance) the timing of IT investments.

Keywords: Investment timing; IT investments; real options; JEL Classification: L86; JEL Classification: G31; JEL Classification: G13 (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0219091509001770
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:rpbfmp:v:12:y:2009:i:04:n:s0219091509001770

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0219091509001770

Access Statistics for this article

Review of Pacific Basin Financial Markets and Policies (RPBFMP) is currently edited by Cheng-few Lee

More articles in Review of Pacific Basin Financial Markets and Policies (RPBFMP) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().