Journal of Banking & Finance Vol. 81 2017
Strategic technology adoption and hedging under incomplete markets
Abstract
We investigate the implications of technological innovation and non-diversifiable risk on entrepreneurial entry and optimal portfolio choice. In a real options model where two risk-averse individuals strategically decide on technology adoption, we show that the impact of non-diversifiable risk on the option timing decision is ambiguous and depends on the frequency of technological change. Compared to the complete market case, non-diversifiable risk may accelerate or delay the optimal investment decision. Moreover, strategic considerations regarding technology adoption play a central role for the entrepreneur’s optimal portfolio choice in the presence of non-diversifiable risk.
- DOI
- 10.1016/j.jbankfin.2016.09.008
- Volume
- 81
- Pages
- 181-199
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib