The impact of voluntary disclosure on a firm’s investment policy

Laura Delaney and Jacco J.J. Thijssen

European Journal of Operational Research, 2015, vol. 242, issue 1, 232-242

Abstract: In this paper we provide a model which describes how voluntary disclosure impacts on the timing of a firm’s investment decisions. A manager chooses a time to invest in a project and a time to disclose the investment return in order to maximise his monetary payoff. We assume that this payoff is linked to the level of the firm’s stock price. Prior to investing, the profitability of the project and the market reaction to the disclosure of the investment return are uncertain, but the manager receives signals at random points in time which assist in resolving some of this uncertainty. We find that a manager whose objective can only be achieved through voluntarily disclosing the return is motivated to invest at a time that would be sub-optimal for an identical manager with a profit maximising objective.

Keywords: Economics; Real options; Voluntary disclosure; Sub-optimal investment, (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:242:y:2015:i:1:p:232-242

DOI: 10.1016/j.ejor.2014.09.047

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