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A real options perspective on entrepreneurial entry in the face of uncertainty
Author(s) -
O'Brien Jonathan P.,
Folta Timothy B.,
Johnson Douglas R.
Publication year - 2003
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.1115
Subject(s) - perspective (graphical) , entrepreneurship , context (archaeology) , face (sociological concept) , economics , value (mathematics) , microeconomics , investment (military) , empirical evidence , industrial organization , marketing , business , computer science , finance , sociology , paleontology , social science , philosophy , epistemology , artificial intelligence , machine learning , politics , political science , law , biology
In this paper we develop and test theory regarding whether entrepreneurs contemplating starting a new venture account for the value of the option to defer the entry decision. While others have illuminated the theoretical applicability of real options theory to entrepreneurship, empirical evidence in this context is lacking. Consistent with predictions derived from real options theory, we find that high uncertainty in the target industry dissuades entry, and that the irreversibility of the entry decision moderates this relationship. Furthermore, we find that the irreversibility of the investment decision can be influenced by industry‐level, firm‐level and even individual‐level factors. Copyright © 2003 John Wiley & Sons, Ltd.