International Journal of Business Data Communications and Networking
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The real options approach to capital budgeting focuses on valuing benefits of project flexibility. This paper presents an incentive consideration in such valuation. Operating flexibility not only allows a firm to change course in response to new information, but also allows interested observers to make inferences based on the change in course (or lack thereof). Such information conveyance through refined operating choices can alter observers' incentives. As a result, an option to delay may prove valuable because it allows a firm to prolong informational advantages.