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.
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.
Original language | English |
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Pages (from-to) | 232-242 |
Number of pages | 11 |
Journal | European Journal of Operational Research |
Volume | 242 |
Issue number | 1 |
Early online date | 22 Oct 2014 |
DOIs | |
Publication status | Published - 1 Apr 2015 |