Abstract
This article studies real option behavior of Chinese listed corporation and how it influences the investment decisions by using the panel data of Chinese stock market. It discussed the relationship between the uncertainty risk and enterprise investment. As the investment is irreversible, uncertainty displays a negative effect on firm investment. The increased idiosyncratic risk will reduce the firm investment, this phenomenon is not the result of risk aversion but it can be attributed to the behavior of real option. The empirical result indicates that to the large companies, state-owned firms and high degree of reversibility investment of the enterprise, they may take the real option investment approach because the idiosyncratic risks significantly reduce the investment behaviors.
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