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

Research output: Contribution to journalArticlepeer-review

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.
Original languageEnglish
Pages (from-to)232-242
Number of pages11
JournalEuropean Journal of Operational Research
Volume242
Issue number1
Early online date22 Oct 2014
DOIs
Publication statusPublished - 1 Apr 2015

Bibliographical note

© 2014 Elsevier B.V. All rights reserved. This is an author produced version of a paper published in European Journal of Operational Research. Uploaded in accordance with the publisher's self-archiving policy.

Cite this